FEMA penalty framework: authorised persons remain liable, but individual vicarious liability requires proof of responsibility during the relevant period.

An authorised person under FEMA remains amenable to adjudication and penalty for dealings with unauthorised persons and failure to comply with regulatory safeguards, including KYC and due diligence requirements, and the general penalty provision is not excluded by Chapter III. The Tribunal also held that delay and denial of cross-examination do not vitiate adjudication absent demonstrated prejudice where relied-upon material was disclosed and hearings were granted. However, vicarious liability under section 42(1) cannot be imposed on an individual unless responsibility for the relevant transactions during the material period is shown, and de facto declarant liability under section 10(6) cannot be stretched beyond the actual declarant. The company's penalty was sustained on the facts.

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Issues: (i) Whether the adjudication proceedings and impugned order were vitiated by delay, want of effective opportunity, or breach of the principles of natural justice, including denial of cross-examination; (ii) Whether an authorised person could be proceeded against under the penalty provision of the Foreign Exchange Management Act, 1999 for contraventions involving dealings with unauthorised persons and failure to comply with the regulatory requirements; (iii) Whether the individual appellant could be fastened with liability under section 42(1) of the Foreign Exchange Management Act, 1999 and as a de facto declarant for the alleged contravention under section 10(6) of the Foreign Exchange Management Act, 1999; (iv) Whether the penalty imposed on the company was sustainable.

Issue (i): Whether the adjudication proceedings and impugned order were vitiated by delay, want of effective opportunity, or breach of the principles of natural justice, including denial of cross-examination?

Analysis: The proceedings were preceded by investigation, issuance of notice, supply of relied-upon documents, invitation of replies, and grant of personal hearing. The plea of inordinate delay was rejected because the record showed sustained investigation and repeated correspondence, and the alleged lapse did not establish any prejudice. On the request for cross-examination, the Tribunal applied the settled principle that such opportunity is not automatic in adjudication proceedings and is required only where prejudice is shown. Since the material relied upon was already disclosed and the appellants did not demonstrate any specific prejudice or loss of a substantive defence, the denial of cross-examination was held not to vitiate the proceedings.

Conclusion: The challenge based on delay and natural justice failed.

Issue (ii): Whether an authorised person could be proceeded against under the penalty provision of the Foreign Exchange Management Act, 1999 for contraventions involving dealings with unauthorised persons and failure to comply with the regulatory requirements?

Analysis: The Tribunal held that the definition of "person" under the Act is broad enough to include an authorised person and that Chapter III does not exclude the applicability of the general penalty provision. It further held that the Reserve Bank of India's power to regulate authorised persons does not bar adjudication by the Enforcement Directorate where contraventions of the Act, rules, regulations, or authorisation conditions are alleged. The Tribunal also held that contraventions under section 3(a) and sections 10(4) and 10(5) were not mutually exclusive on the facts and could be invoked where the authorised person had dealt with unauthorised remitters and issued forex cards without verifying the actual travellers.

Conclusion: The objection to the company's liability as an authorised person was rejected.

Issue (iii): Whether the individual appellant could be fastened with liability under section 42(1) of the Foreign Exchange Management Act, 1999 and as a de facto declarant for the alleged contravention under section 10(6) of the Foreign Exchange Management Act, 1999?

Analysis: The Tribunal found that the individual appellant was not shown to be in charge of the relevant regional operations during the period when the impugned transactions took place. The record instead showed that he was transferred to the relevant role only later. In those circumstances, the vicarious liability imposed under section 42(1) could not stand. The Tribunal further held that treating him as a de facto declarant under section 10(6) was unsustainable because the provision could not be stretched to substitute him for the actual passengers or declarants, especially when he was not responsible for the relevant transactions during the material period.

Conclusion: Liability of the individual appellant was not sustainable.

Issue (iv): Whether the penalty imposed on the company was sustainable?

Analysis: The Tribunal found repeated and large-scale issuance of forex prepaid cards in the names of persons who had not approached the company, receipt of funds from third parties and unauthorised entities, and failure to observe the required due diligence and KYC norms. The Tribunal treated these facts as serious contraventions causing loss of foreign exchange and held that the penalty imposed on the company was proportionate to the contravention amount and warranted on the record.

Conclusion: The penalty on the company was upheld.

Final Conclusion: The appeal of the company failed, while the appeal of the individual appellant succeeded, resulting in retention of the company's penalty and deletion of the individual appellant's liability.

Ratio Decidendi: An authorised person remains amenable to adjudication and penalty under the Act for contraventions involving dealings with unauthorised persons and non-compliance with regulatory safeguards, but vicarious or declaratory liability cannot be imposed on an individual unless his responsibility for the relevant transactions during the material period is established.

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