2026 (3) TMI 1644 - HC - FEMA

Pre-deposit relief under FEMA penalty challenge: Tribunal discretion upheld, but deposit condition further reduced in the interests of justice.

The second proviso to Section 19 allows dispensation of penalty pre-deposit only where undue hardship is shown, subject to conditions the Appellate ... Waiver of pre-deposit - Undue hardship - Supervisory jurisdiction under Article 227Waiver of pre-deposit - Undue hardship - Prima facie case - Supervisory jurisdiction under Article 227 - The challenge to the Appellate Tribunal's order granting only partial waiver of pre-deposit under Section 19 of FEMA was decided by examining whether the condition requiring deposit could be interfered with in supervisory jurisdiction. - HELD THAT: - The Court held that under Section 19 of FEMA, deposit of the penalty is the rule, and dispensation is an exception exercisable in a particular case on satisfaction of undue hardship, subject to conditions considered fit to safeguard recovery. The Appellate Tribunal had already exercised that statutory discretion by granting substantial waiver and directing deposit of only a part of the penalty. On the petitioners' plea of a strong prima facie case, the Court noted that, on their own statements, they were aware that the amounts were to be remitted abroad and the relevant FEMA provisions could therefore stand attracted; hence, no clear prima facie case for total waiver was made out. On hardship, the Court found no material to show that the Tribunal's order suffered from perversity, unreasonableness or non-application of mind. It further held that, in proceedings under Article 227, the High Court does not act as an appellate forum to reappreciate the specialised tribunal's assessment. The decisions in Nimesh Suchde vs. Union of India (UOI) and Ors. and Priya Shah vs. Enforcement Directorate were held inapplicable on facts, since those cases did not concern a comparable exercise of discretion where substantial waiver had already been granted. [Paras 13, 14, 15, 16, 17]No infirmity was found in the Tribunal's exercise of discretion; however, in the interest of justice, the condition was modified by reducing the cash pre-deposit from 10% to 5%, with the balance 5% to be secured by bank guarantee or surety to the satisfaction of the Appellate Tribunal.Final Conclusion: The petitions were disposed of by upholding the Tribunal's order in principle and declining interference on merits under Article 227. The only modification made was to reduce the immediate pre-deposit requirement to 5% and permit the remaining 5% to be secured by bank guarantee or surety, leaving the merits of the penalty appeals open before the Appellate Tribunal. Issues: Whether the Appellate Tribunal's order directing partial pre-deposit of penalty under the Foreign Exchange Management Act, 1999 called for interference, and whether the pre-deposit condition required modification.Analysis: The second proviso to Section 19 permits dispensation of penalty pre-deposit only in a particular case where undue hardship is shown, subject to conditions the Appellate Tribunal considers fit. The record showed that the Tribunal had already exercised that discretion and granted substantial relief by reducing the deposit requirement to 10% of the penalty. The challenge to the petitioners' prima facie case was not sufficient to dislodge the Tribunal's assessment, and the scope of interference under Article 227 remained narrow. At the same time, the Court found no infirmity in the Tribunal's exercise of discretion, but considered it appropriate in the interests of justice to further reduce the deposit requirement.Conclusion: The Tribunal's order was sustained in principle, but the pre-deposit condition was modified from 10% to 5% of the penalty amount, with the balance to be secured by bank guarantee or surety to the satisfaction of the Appellate Tribunal.