2025 (12) TMI 108 - AT - FEMA

Appeal partly allowed in FEMA Section 6(3)(b) contravention; liability upheld under Sections 42(1), 13(1), penalty reduced

Shri Jignesh Arvind Shah Versus The Joint Director Directorate of Enforcement, Hyderabad

AT partly allowed the appeal arising from penal proceedings for contravention of Section 6(3)(b) FEMA read with Para 8 of Schedule I to the 2000 ... Foreign Inward Remittance Certificates - non-issuance of shares within 180 days of receipt of foreign remittance - Imposition of Penalty - requirement of mens rea - mala fide intention - contravention of Section 6(3)(b) of FEMA read with Para 8 of Schedule I to the 2000 Regulations - Appellant submitted that contravention is purely technical and has caused no prejudice to the exchequer or to the foreign investor - no loss to the Government or any stakeholder - HELD THAT:- It is an admitted fact that the Appellant Shri Jignesh Arvind Shah was the Managing Director of the Company from its inception and continued in that position till 2014 - The Appellant was responsible for the affairs of the Company during the relevant period. He is therefore liable for penalty for the aforementioned contravention in terms of Section 42 (1) of FEMA. Even the argument of the Appellant that the contravention of the FEMA was unintentional cannot be accepted. There is nothing in the Section 13 (1) of FEMA, which can indicate directly or indirectly requirement of mens rea. Words like “willful”, “deliberately”, “intentionally” etc. are missing. We note that this Tribunal vide order [2024 (10) TMI 1746 - APPELLATE TRIBUNAL UNDER SAFEMA NEW DELHI] disposed of the Application for waiver of pre-deposit of penalty amount by directing the Appellant to make pre-deposit. We further note that it is on record that the Appellant resigned from the Company and ceased to carry out any responsibility towards it. We also take note of the pleading to make the penalty proportionate to the offence with which the Appellant has been charged. We therefore reduce the penalty, in view of the aforementioned facts and circumstances. The amount of pre-deposit of penalty already made shall be adjusted towards the reduced penalty. We partly allow the Appeal. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether failure by the company to issue shares or refund the foreign remittance within the prescribed 180 days constituted contravention of Section 6(3)(b) of FEMA read with Para 8 of Schedule I to the 2000 Regulations. 1.2 Whether the appellant, as Managing Director during the relevant period, was liable under Section 42(1) of FEMA for the company's contravention. 1.3 Whether the existence or absence of mens rea or mala fides is relevant to the imposition of penalty under Section 13(1) of FEMA. 1.4 Whether, in the facts and circumstances, the quantum of penalty imposed on the appellant was disproportionate and liable to reduction. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Contravention by the company in respect of foreign remittance Legal framework 2.1 The contravention alleged was under Section 6(3)(b) of FEMA read with Para 8 of Schedule I to Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, relating to issuance of shares/refund of share application money within 180 days. Interpretation and reasoning 2.2 The Tribunal recorded that the primary issue was the non-issuance of shares within 180 days of receipt of foreign remittance amounting to Rs. 5,49,96,598 by the company. 2.3 It was treated as 'undisputed' that such contravention occurred 'in so far as the Company... is concerned', and reference was made to the adjudicating authority's finding that the share application money was 'left unattended for over a period of more than 4 years', implying 'a serious lapse on the part of administration'. Conclusions 2.4 The Tribunal proceeded on the basis that there was a clear contravention by the company of Section 6(3)(b) of FEMA read with Para 8 of Schedule I, and did not reopen or disturb that finding. Issue 2: Liability of the appellant as Managing Director under Section 42(1) FEMA Legal framework 2.5 Section 42(1) FEMA, making persons in charge of and responsible to the company for the conduct of its business liable for contraventions, was applied. Interpretation and reasoning 2.6 The Tribunal found as an 'admitted fact' that the appellant was the Managing Director of the company from its inception and continued in that position till 2014. 2.7 The foreign remittances in question (FDI of Rs. 5,49,96,598) were received during 2010-2012, i.e., within the period when the appellant was Managing Director. 2.8 On that basis, the Tribunal held that 'it is therefore obvious that the Appellant was responsible for the affairs of the Company during the relevant period.' 2.9 The appellant's contention that he had no role in day-to-day management or regulatory compliance, and that another director handled such matters, was not accepted as sufficient to absolve him of responsibility under Section 42(1). Conclusions 2.10 The Tribunal held the appellant liable for penalty for the company's contravention in terms of Section 42(1) FEMA, as a person responsible for the affairs of the company during the period of contravention. Issue 3: Relevance of mens rea for penalty under Section 13(1) FEMA Legal framework 2.11 Section 13(1) FEMA, prescribing penalty for contravention of the Act, rules, regulations, etc., was reproduced and examined. 2.12 The Tribunal also relied on the judgment of the Supreme Court in The Chairman, SEBI v. Shriram Mutual Fund, holding that penalty is attracted upon establishment of contravention of a statutory obligation, irrespective of intention, unless the statute requires proof of mens rea. Interpretation and reasoning 2.13 The Tribunal noted the absence in Section 13(1) of words indicating any requirement of mens rea, such as 'wilful', 'deliberately', or 'intentionally'. 2.14 Applying the principle laid down in the cited Supreme Court decision, the Tribunal held that once contravention is established, the intention of the party becomes 'wholly irrelevant' unless the statute expressly requires proof of guilty intention. 2.15 On that basis, the appellant's argument that the contravention was unintentional or bona fide was rejected as a ground to escape liability. Conclusions 2.16 The Tribunal concluded that mens rea is not a necessary element for imposition of penalty under Section 13(1) FEMA; penalty is attracted upon proof of contravention, regardless of intention. Issue 4: Quantum and proportionality of penalty on the appellant Interpretation and reasoning 2.17 The Tribunal took note that the appellant had resigned from the company and had ceased to carry out any responsibility towards it. 2.18 It also recorded the plea that the penalty be made proportionate to the offence with which the appellant had been charged. 2.19 The Tribunal noted that it had earlier directed a pre-deposit of Rs. 5,00,000 towards the imposed penalty of Rs. 25,00,000. 2.20 Having regard to the facts and circumstances, including the appellant's position and subsequent resignation, the Tribunal found it appropriate to reduce the quantum of penalty. Conclusions 2.21 While affirming the appellant's liability for contravention, the Tribunal reduced the penalty from Rs. 25,00,000 to Rs. 5,00,000. 2.22 The amount already deposited as pre-deposit was directed to be adjusted towards the reduced penalty. 2.23 The appeal was accordingly partly allowed to the limited extent of reduction of penalty.