2026 (2) TMI 187 - AT - FEMA

Contravention of foreign exchange rules for offshore import payments -- tribunal reduces penalty to proportionate amount after delay and predeposit

Alleged contravention of foreign exchange rules for routing import payments outside authorised dealers without prior RBI approval was treated as breach; ... Contravention of Section 3(b) of FEMA, 1999 - Dealing in foreign exchange through authorised dealers / prior permission of Reserve Bank of India - Proportionality of penalty and appellate discretion to reduce penalty - Effect of delay and inability to recover penalty on quantum of penalty - HELD THAT:- The allegation of contravention of Section 3(b) of the Act of 1999 has been made because of the payment towards import of diamonds from a firm of Congo by way of adjustments out of the money earned by Mr. Pravin Kumar Ratnabhai Ajudiya outside Indian and thereby aforesaid was taken to be contravention of the Act because it was without the approval of the RBI or was not routed through authorized dealer. I, however, find that in the custom case, the matter was decided in the favour of the appellant though it was in reference to the different sets of statutory provisions and accordingly reference of the allegation was also in pursuance to the Customs Act but fact remains that this matter is old by 14 years by now and otherwise appellants have already paid 50% of the penalty in pursuance to the order passed by this Tribunal on the application for waiver of condition of pre-deposit. The penalty amount should be reduced to the amount already paid by the appellant to settle the old matter by more than 14 years. It is even taking note of the facts of the case of M/s Chetak Gems Pvt. Ltd. where the allegations were again for the contravention of the provisions of the Act of 1999 in view of the fact that M/s Chetan Gems Pvt. Ltd. remitted USD 1,64,474 to M/s KWB Congo as import advance for the import of rough diamonds. The import did not actually happen therefore M/s KWB directed the payment of the amount to the M/s Chetan Gems via other firm. This was created by web chain to set up the transaction of one party against the other and in the process, the respondent found contravention of the provisions of the Act of 1999, however, taking into consideration the overall case, I am of the opinion that penalty amount even in the case of M/s Chetak deserved to be reduced to the amount already paid to satisfy the conditions of pre-deposit. It is looking to the fact that appellant did not contest the appeal on the allegations for the contravention of Section 3(b) of the Act of 1999 and other provisions but prayed to make penalty amount to be proportionate. Accordingly, the Impugned Order is interfered only for reducing penalty which is made 50% of the penalty imposed by the Adjudicating Authority and finally maintained by the Special Director (Appeals) reducing it in the case of Mr. Pravin Kumar Ratnabhai Ajudiya while maintaining it for other appellants. The appeals are disposed of with the aforesaid. Issues: (i) Whether contraventions under Section 3(b) of the Foreign Exchange Management Act, 1999 (FEMA) were made out in respect of the transactions described and confirmed by the Special Director (Appeals); (ii) Whether the quantum of penalty imposed by the Adjudicating Authority and affirmed by the Special Director (Appeals) is disproportionate and requires interference.Issue (i): Whether contraventions under Section 3(b) of FEMA, 1999 were established for the transactions described in the adjudication and appeal records.Analysis: The Tribunal considered the recital of facts in the impugned order and the Special Director (Appeals)'s findings (paras 6.2.1 and 6.2.2) describing adjustments and transfers of foreign-exchange-linked payments among parties without routing through authorised dealers or obtaining RBI permission. The record showed transactions involving set-off of amounts and transfers of rough diamonds resulting in alleged dealing in foreign exchange outside authorised channels. The appellants did not press for a reversal of the contravention findings before the Tribunal, instead seeking reduction in penalty.Conclusion: The findings of contravention under Section 3(b) of FEMA, 1999 as recorded by the Adjudicating Authority and affirmed by the Special Director (Appeals) are treated as established for the purposes of these appeals.Issue (ii): Whether the penalty quantum imposed required interference on grounds of disproportionality.Analysis: Having regard to the age of the matters, partial payment already made by appellants pursuant to pre-deposit directions, inability of the respondent to recover the balance in the intervening period, and the appellants' election before the Tribunal to seek relief only on proportionality of penalty, the Tribunal examined the fitness of reducing the monetary sanction. The Tribunal did not re-adjudicate the merits of contravention but focused on quantum and equity in disposal.Conclusion: The Tribunal interfered with the penalty quantum only and reduced the penalty to 50% of the amount imposed by the Adjudicating Authority (equivalent to the amount already paid pursuant to pre-deposit) for the appellants, while maintaining the established contraventions.Final Conclusion: The appeals are disposed of by confirming the contraventions under Section 3(b) of FEMA, 1999 and by moderating the monetary sanction; interference is limited to reducing the penalty quantum to 50% of the originally imposed amount in the interests of equity and final settlement.Ratio Decidendi: Transactions constituting dealing in foreign exchange without routing through authorised dealers or without RBI permission fall within Section 3(b) of FEMA, 1999, and where contraventions are treated as established but equitable considerations (age of matter, pre-deposit paid, and recovery failure) apply, a Tribunal may lawfully moderate the penalty quantum to achieve proportionality.