FEMA non-repatriation remittances and civil penalty principles applied, with contravention sustained and penalty moderated.

Funds remitted by a non-resident investor were treated as falling within Regulation 5(1) because the record did not show a genuine non-repatriation investment under Schedule 4. The company's treatment of the receipt as unsecured borrowing and later as share application money, the absence of share issuance within the stipulated period, and the lack of proper intimation to the RBI and authorised dealer supported findings of contravention under FEMA. Denial of cross-examination caused no prejudice where the breaches were proved by documentary material. Penalty under FEMA was described as a civil liability not requiring mens rea, but the monetary sanction was moderated on proportionality grounds.

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Issues: (i) Whether the funds remitted by the non-resident investor to the company were on non-repatriation basis so as to attract Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, and whether the resulting contraventions under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 were made out. (ii) Whether the denial of cross-examination and the quantum of penalty warranted interference.

Issue (i): Whether the funds remitted by the non-resident investor to the company were on non-repatriation basis so as to attract Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, and whether the resulting contraventions under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 were made out.

Analysis: The remittances were held not to be covered by Regulation 5(3)(ii) read with Schedule 4, because the amount was not shown to be a genuine non-repatriation investment. The company's own records treated the receipt as unsecured borrowing and later as share application money, while part of the amount was repatriated back to the remitter. No shares were issued within the stipulated period, no proper intimation was made to the Reserve Bank of India or the authorised dealer bank, and the amount retained as well as the amount repatriated after expiry of 180 days fell within the cited regulatory framework. The contraventions were therefore treated as established.

Conclusion: The remittance was rightly treated as falling under Regulation 5(1), and the contraventions under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 were upheld.

Issue (ii): Whether the denial of cross-examination and the quantum of penalty warranted interference.

Analysis: The denial of cross-examination caused no prejudice because the alleged breaches were supported by bank records, statutory filings, and other documentary material, and not by the impugned statement alone. On penalty, the decision proceeded on the basis that contravention under FEMA is a civil liability and mens rea is not essential for imposition of penalty. However, the penalty was found liable to be moderated on the facts and the extent of the contraventions.

Conclusion: The refusal of cross-examination was sustained, but the penalties were reduced on proportionality considerations.

Final Conclusion: The findings of contravention were maintained, but the monetary consequences were substantially reduced, resulting in partial relief to the appellants.

Ratio Decidendi: Where documentary evidence establishes FEMA contraventions, absence of mens rea or denial of cross-examination does not negate liability, though the penalty may be moderated on proportionality grounds.

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