AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 1491
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 1999 read with Regulation read with relevant clauses of FEM (Transfer or Issue of any Foreign Exchange Security) Regulation 2000. b. Rs. 10,00,000/- (Ten lakhs only) against appellant company and Rs. 2,50,000/- (Two Lakh Fifty Thousand only) against appellant as Shri Rajesh S. Adani, Managing Director of the appellant company for contravention of Section 8 of FEMA read with its relevant Regulations to the extent of non-repatriation of US Dollar 2,71,293 which was proceeds of liquidation of M/s Adani (Wilmar) Pvt. Ltd. a step down Subsidiary of M/s Adani Global Mauritius. 2. It is seen from the record that, this Appellate Tribunal earlier heard the appeals and allowed the same vide its order dated 26.10.2009. The said order of this Tribunal was challenged by the Enforcement Directorate (ED) before the Hon'ble High Court, Bombay in FEMA Appeal Nos. 01 of 2011 and 2 of 2011 against the order in Appeal nos. 182/2009 & 181/2009 respectively (present appeals). The Division Bench of the Hon'ble High Court vide its order dated 09.12.2011 has held that "we are of the view that the interference of this court is warranted since the first Appellate Authority has failed to render ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....man M/s Adani Enterprises Ltd. (Formerly M/s Adani Exports Ltd.); iii. Shri Rajesh S. Adani, Managing Director, M/s Adani Enterprises Ltd. (Formerly M/s Adani Exports Ltd.), and iv. Sh. Vasant S. Adani, whole time Director, M/s Adani Enterprises Ltd. (Formerly M/s Adani Exports Ltd.) (B) The following violations of provisions of FEMA, 1999 and relevant Regulations as well as circulars of RBI thereof have been alleged against the above mentioned entity/persons in the said complaint:- (i) Sec. 6(3)(a) of FEMA r/w Regulation 5,6 and 13 (a) of FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US $ 10 Million. (ii) Sec. 6(3)(a) of FEMA r/w Regulation 5 and 6 FEM (Transfer of Issue or any Foreign Security) Regulation 2000 to the extent of US $ 10 Million. (iii) Sec. 6(3)(a) of FEMA r/w Regulation 5 and 6 FEM (a) of FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US $ 6 Million. (iv) Sec. 6(3)(a) of FEMA r/w Regulation 6 of FEM (Transfer of Issue or any Foreign Security) Regulation 2000 to the extent of US $ 6 Million. (v) Sec. 6(3)(a) of FEMA r/w Regulat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uritius, extract of cash flow statements for the above years, "Notes' forming part of financial statement in respect of revenue for each of the above said period. AEL also submitted financial statements of M/s Adani Global (FZE), a second generation subsidiary company set up in UAE by M/s AGL, for the period 1998-2005 and 2007 wherein it was reported by M/s AEL that „the establishment of trading license and it principally trades in metal scrap, agro commodities, oil, precious metals and stones'. AEL also submitted financial statements of M/s. Adani Global (Pte) Ltd., Singapore, a second generation subsidiary company, set up in Singapore by AGL, Mauritius. On Perusal of these Financial Statements for the years 2002-2005 and 2007, it is observed from the " Notes to the Financial Statements' that for all these years, it has been reported therein that „the principal activities of the company are to carry on business as general merchants, importers and exporters, commission agents and manufactures representative.' 5.(E) On scrutiny of various documents including Director's Report, their Financial Statements, clarification from RBI on the need of getting approval for the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Singapore $ 5,00,000/- for acquiring 5 lakh shares of Singapore $ 1 each of M/s Adani Wilmar (Singapore) Pvt. Ltd. (a Joint Venture Company) during the year 2000 without any prior approval of RBI. This company did not start any business operation and the name of the company was struck off from the register of Registrar of Companies and Business, Singapore on 17th December, 2002. This company went into liquidation during the year 2002 and the proceeds on the liquidation quantified as US $ 2,71,293/-. It is further alleged by the ED that, from the letter of KPMG dt. 15.03.2006, it appears that an amount of US$. 2,71,293/- was due to the AEL through M/s. AGL, Mauritius or M/s. Adani- Wilmar (Singapore) Pte. Ltd. No documents were submitted by the AEL to show that it had taken any steps to repatriate to India the amount of US$. 2,71,293/- which it had a right to receive. The AEL vide their letter dated 4th July, 2007 contended that the money was remitted by M/s. AGL, Mauritius and since no funds were transferred from India, there has been no repatriation of this amount to India. However, the AEL failed to submit documentary evidence regarding the receipt of the said US$ 2,71,293/- by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the same core activity carried on by the Indian party'. Since the activity of the WOS, i.e. M/s. AGL, Mauritius admittedly was found to be engaged in investments and not trading the remittance of US $ 6 million (equivalent to Indian Rs. 29.5 Crores) is also in violation of section 6(3)(a) of the FEMA, 1999 red with Regulation 5 & 6 of the FEM (Transfer or issue of any Foreign Security) Regulation 2000. 6.(4) The AEL had made the following false declaration in the ODA form that:- "(iv) No investigation by the Directorate of Enforcement are pending against us.' It is the contention of the ED that the investigation started against the AEL in October, 2001 and AEL in response to the Department's Directive #T-2/510-B/2001(AKN)/173 dated October, 2001 furnished their reply vide their letter dt. 17th October, 2001 and on 6th April, 2002. AEL was well aware that they were under investigation by the ED. But they suppressed this fact and made another investment of US $ 6 million under the automatic route to its WOS in Mauritius. They also made false and incorrect declaration in the ODA form in respect of the said remittance furnished to the RBI by mis-declaring that they are not und....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., for the reasons mentioned in the immediately preceding para, is also contravention of section 6(3)(a) of the FEMA, 1999 read with Regulation 13 of the FEM (Transfer or issue of any Foreign Security) Regulation 2000. 6.(7) M/s Adani-Wilmar (Singapore) Pvt. Ltd. did not start its business operation and was closed on 17th December, 2002. The letter dt. 15th March, 2006 from KPMG, Mauritius do not confirm the receipt of amount of Singapore $ 5,00,000/- in the account of Ms/ AGL, Mauritius. The said letter stated only about the liquidation of M/s Adani Wilmar (Singapore) Pte. Ltd during the year 2002 and the proceeds of liquidation amounting to US $ 2,71,293/-. Since the AEL had a right to receive the said amount from M/s AGL, Mauritius or M/s Adani Wilmar (Singapore) Pte. Ltd, AEL appears to have contravened the provision of Section 8 of the FEM Act, 1999 read with regulation 3 of the FEM (Transfer or issue of any Foreign Security) Regulation 2000. 7. The Appellants alongwith Shri Gautam S. Adani and Shri Vasant S. Adani contested the allegations and strongly refuted the same before the Adjudicating Authority and in the appeal the appellants have challenged the allegations of E....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents, to set up foreign entities, i.e. first, the WOS in Mauritius, and then subsequently, its two step down subsidiaries, Adani FZE and AGPL, in Dubai and Singapore respectively. Both the second generation subsidiaries are in all times engaged in trading, which sufficiently shows that there's no contravention of section 6 (3)(a) of the said Act read with Regulation 5 and Regulation 6 of the said Regulations. Merely because WOS may not have undertaken trading in its own name, doesn't mean there's any violation of the conditions of the RBI letter dated 07/08/96 or Regulation 6(2)(iii) of the said Regulations. The subsidiary in Singapore was set up validly in terms of conditions prescribed in paragraph 8(b) read with paragraph 8(a) of the approval letter dated 07/08/96 issued by RBI. As per the said paragraph 8(b) read with paragraph 8(a), the WOs in Mauritius can set up a stepped-down subsidiary after two years (second generation foreign concern) without prior permission of RBI, provided there are no dues pending or outstanding for repatriation to India and the Indian party does not seek fresh cash remittance from India. All these conditions are duly satisfied. Hence, no pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 13 aren't applicable. Also Adani Wilmar (Singapore) Pte Ltd., was registered on 23rd January, 1999, vide registration no. 199900379G as a joint venture company and hence the provisions of Regulations do not apply here as well. Also, AGPL, was set up on 8th April, 2000, which is before the coming into force of the said regulations and hence Regulation 13 does not apply at all. At the relevant time, the AEL was required to apply 5 conditions set out in the approval letter dated 7/8/96, issued by RBI. The Clause 8(a) and (b) of Annexure "1B" contain the standard terms and conditions for approval of JV/WOS abroad. In the present case Clause 8(b) applies which specifically deals with WOS. It provides that all the decisions referred to in Clause 8(a), including the participation in the equity capital of another concern can be undertaken, without permission from the RBI, provided the 4 conditions mentioned thereunder are fulfilled. All these 4 conditions were fulfilled by the AEL, and therefore consent by the AEL in participation by AGL in the equity capital of another concern didn't require approval by RBI. Regulation 6 and Regulation 13 operate in two differe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of permission granted by the RBI on 7th August, 1996, it is held that the permission to set up the WOS in Mauritius was for doing the business in trading. From the cash flow statements of the WOS (as detailed in page 4 of the complaint) it is seen that during the period from 1997 to 2007, all the receipts of the WOS was from investment and financing and not from trading. Since the WOS was engaged in the activity of investment and financing and not „trading' the operation of the said WOS was contrary to the permission granted by RBI and therefore it is clear that the charge alleged in the SCN in this regard i.e. Sec. 6(3)(a) r/w Reg. 5,6 and 13 (1)(a) of the FEM(Transfer or Issue of any Foreign Security) Regulations 2000 stands proved. 8(B). In respect of second charge alleged in the SCN regarding remittance of US $ 4 million and 6 million to the WOS in Mauritius, it is held that as submitted by the AEL in the reply to the SCN, it may be true that the remittance of US $ 10 million was finally used for setting up the step down subsidiaries in UAE and Singapore and that the said step down subsidiaries were engaged in trading activity, the fact remains that the said remittan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and sixth charges alleged in the SCN regarding contravention under section 6(3)(a) of FEMA r/w Reg. 13 of the FEM ( Transfer or Issue of any Foreign Security) Regulation, 2000 to the extent of US $34,80,000 and US$5,00,000/-. The allegation in that the AEL had started two step-down-subsidiaries by name Adani Global Pte. Ltd. Singapore by investing US $ 34,80,000/- and M/s Adani Wilmar (Singapore) P. Ltd. with an investment of US $ 5,00,000/-. The said two companies were started as the step-down subsidiaries of the WOS in Mauritius without the permission of RBI. After discussing the facts, materials and the relevant provisions of law the Adjudicating Authority held that:- " It can thus be seen that the noticee company falls under the category mentioned in para 8(b) above. The step down subsidiary AGPL was set up in April, 2002 and the remittance of US $ 6 million was effected in June 02. Adani Wilmar was also established in the year 2000 i.e. before the remittance of US $ 6 million was made. Since M/s. Adani Global (Mauritius ) Ltd. was a 100% WOS of the noticee company and since the WOS is in operation for more than two years and since the noticee company had fulfilled th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....idence has been brought on record to prove the contrary. While holding so the Adjudicating Authority held Sh. Rajesh Adani, being Managing Director, he was incharge and responsible for the conduct of the business of the Company and held him liable for the contravention of the provisions of FEMA committed by the Company and liable to be punished accordingly. 9. While holding as above the Adjudicating Authority considered the quantum of penalty and ordered imposition of consolidated penalty of Rs. 4,10,00,000/- on the AEL for violation of section 6(3)(a) r/w relevant clause of the FEM ( Transfer or Issue of any Foreign Security) Regulation, 2000 and for the contravention of the provisions of section 8 of FEMA, 1999 r/w with its relevant Regulations to the extent of US $ 2,71,293/-. The Adjudicating Authority on term to impose penalty of a sum of Rs. 1,02,50,000/- on Sh. Rajesh Adani for violation of section 6(3)(a) r/w relevant clause of the FEM ( Transfer or Issue of any Foreign Security) Regulation, 2000 and for the contravention of the provisions of section 8 of FEMA r/w with its relevant Regulations. Discussions and Findings 10. The appeals are heard from both sides. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of India may, by regulations, prohibit, restrict or regulate the following-, (a) transfer or issue of any foreign security by a person resident in India' (ii) Regulation 5 of the RBI Notification No. FEMA/19/RB/2000 dt. 3rd May,2000 on the FEM(Transfer or Issue of any Foreign Security) Regulations, 2000 read as under:- "Save as otherwise provided in the Act, rules or regulations made or directions issued thereunder, or with prior approval of Reserve Bank. i) No person resident in India shall make any direct investment outside India; and ii) No Indian party shall make any direct investment in a foreign entity engaged in real estate business or banking business' (iii) Regulation 6 of the RBI Notification No. FEMA/19/RB/2000 dt. 3rd May,2000 on the FEM(Transfer or Issue of any Foreign Security) Regulations, 2000 read as under:- "1. Subject to the conditions specified in sub-regulation (2), an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India. 2) (i)The total financial commitment of the Indian party shall not exceed US $ 50 million or its equivalent in a block of three fina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roducts, Plastics, PVC goods, Shoe Polish, etc. It is also mentioned in the said application that AEL had already taken steps to incorporate the WOS as WOS of AEL in Mauritius and application has been sent to the Mauritius Government for the approval out of the following names in the order of preference (at page 094 of the appeal folder) a. Adani Global Limited b. Adani Overseas Limited c. Adani International Limited. 12.(F) It is further mentioned therein that the Indian promoter i.e. AEL will have contribution towards equity shares capital amounting to US & 4 million (at page 096 of the appeal folder) 12.(G) This unsigned copy of application has been filed by the appellants as enclosure part of Annexure-N. No other copy of application is available on record. Neither of the parties raised any question about the validity of the said unsigned copy of application. So it is accepted as the copy of application filed by AEL before RBI in Feb. 1996 for approval of setting up WOS in Mauritius. 12. (H) The RBI Considered the proposal in the application dt. 29.02.1996 submitted by AEL and vide Annexure „A' conveyed its approval with approval no. AHW....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Singapore were, on the contrary, setup to undertake trading as per RBI approval letter. 12 (N) We are unable to agree with the aforesaid contentions of the appellants. There is no dispute to the fact that the AGL, Mauritius did not carry on trading business at Mauritius itself but invested in other countries which does not satisfy the terms and the conditions of the approval, granted by the RBI, at the relevant point of time. It is seen from the cash follow statement of the AGL, Mauritius that during the period 1997-2007 all the receipt of WOS (AGL, Mauritius) was from the investment and financing and not from the trading, so we confirm the findings of the Adjudicating Authority and held that the first charge alleged above is held to be proved. Therefore we come to the conclusion there is a violation of section (6)(3)(a) of FEMA r/w Regulation 5,6 and 13(1)(a) of FEMA (Transfer or Issue of any Foreign Security) Regulation,2000 against AEL. 13.(A) The second allegation against the appellants in the complaint is in respect of the remittance of US $ 4 million and US $ 6 million (total US $ 10 million) to the WOS in Mauritius. The allegation behind this charge is that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atic route subject to the condition laid down thereunder. 13.(D) The total amount of USD 10 million remitted to WOS, Mauritius meant for carrying the business approved by the RBI vide letter dt. 7th August, 1996. The same was also mentioned in the ODA, submitted by AEL. But it was not used by WOS, Mauritius for trading business by itself at Mauritius. Rather the aforesaid money was invested in other concerns setup as WOS at Dubai & Singapore. 13.(E) The aforesaid activities of AEL being the „ultimate holding company,' was contrary to provisions contained in the Regulations, amounts to violation of section 6(3)(a) r/w Regulations 5 & 6 of FEMA (transfer or issue of any foreign security) Regulation, 20002 13.(F) In view of the above, we do not see any illegality in the impugned order hence it is held that the second allegation against the appellant is also stand proved. 14.(A) The third allegation in the complaint is also under sec. 6(3)(a) r/w Regulation 5 and 6 of the FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US $ 6 million. The basis of alleg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Enforcement Directorate (ED). As per the allegation contained in the complaint, the ED had initiated investigation against the AEL in October 2001 and had issued a Directive in October 2001 to the AEL, to which they replied by letter dated 17.10.2001 and another letter dated 06.04.2002 and thus the AEL was aware that they were under the investigations by the ED, even then the AEL, in the ODA form dt. 05.06.2002 submitted to the RBI made a declaration that "they were not under investigations by the ED'. 15.(B) Section 37 (1) of FEMA, 1999 deals with Power of Search, Seizure etc. and reads as under:- "37. Power of search, seizure, etc.-(1) The Director of Enforcement and other officers of Enforcement, not below the rank of an Assistant Director, shall take up for investigation the contravention referred to in section 13. -(1) The Director of Enforcement and other officers of Enforcement, not below the rank of an Assistant Director, shall take up for investigation the contravention referred to in section 13." (2) Without prejudice to the provisions of sub-section (1), the Central Government may also, by notification, authorise any officer or class of officers ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the purpose of enquires being carried out by the ED, Mumbai, Zonal Office'. At the same time at the top of the said directive it is clearly mentioned as "order for requisition of information/documents under the provisions of section 37 FEMA, 1999'. Similarly at the bottom of the said letter it is also mentioned as "This order is issued under provisions of section 37 of FEMA, 1999, non-compliance of which is punishable under law'. 15.(G) Section 37 of FEMA, 1999 deals with power of search, seizure etc.. Section 37 (1) provides that the Director of ED and other officers of ED not below the rank of Assistant Director shall take up for investigation for the contravention referred to in section 13. In exercise of aforesaid power the Assistant Director had issued the aforesaid letter/directive in October, 2001. Section 37 contains the word "investigation'. There is no provisions u/s 37 for initiating any enquiries. When in the said letter it is particularly stated that the same is issued u/s 37, it means that the information/documents were sought for the purpose of "investigation'. It would have been fair enough on the part of the appellants to have disclosed the fact of the letter dt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all reasonable steps to realise and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank. 17(C). Whereas Regulation 3 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulation 2000 provide as under:- "A person resident of India to whom any amount of foreign exchange is due or has accrued shall, save as otherwise provided under the provision of the Act, or the rule and regulation made there-under, or with the general or special permission of the Reserve Bank, take all reasonable steps to realize and repatriate to India such foreign exchange, and shall in no case do or refrain from doing anything, or take or refrain from taking any action, which has effect of securing:- a) That the receipt by him of the whole or part of that foreign exchange is delayed: or b) That the foreign exchange ceases in the whole or in part to be receivable by him.' 17(D). The aforesaid last allegation against the appellants are that the AEL has contravened the provisions of section 8 of FEMA r/w regulation 3 of the FEM (Realisiation, Repatriate and Surrounding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uary, 2006 which had been forwarded to us by the administrator. As per the audited financial statements for the year ended 31st December, 1999, the company hold 5,00,000/- equity shares of US$ 1 each in Adani-Wilmar (Singapore) Pte. Ltd. We understood that Adani-Wilmar(Singapore) Ptd. Ltd. went into liquidation during the year 2002 and the proceeds of liquidation amounted to USD 271,293/-" 17(G). From the plain reading of the letter of KPMG it is seen that it don't have the nature and character of a certificate. It is in the form of a letter. Through this letter KPMG has informed the AEL about the Audited Financial Statements and about liquidation of Adani-Wilmar (Singapore) Pte. Ltd. during the year 2002 and the proceeds of liquidation amounting to USD 2,71,293/-, nothing more. The said letter does not reveal anything else about the repatriation or to whom the amount has gone. The said letter of KPMG relied on by the appellants is not sufficient to substantiate their stand. 17(H). Since, the said amount has not been repatriated to India, therefore, AEL has violated the provisions\Regulations as alleged above. Therefore, we confirm the findings of the Adjudi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommitted, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. (2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. 18(E). All these above letters and his conduct goes to show that Sh. Rajesh S. Adani is covered u/s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and (v) It is contrary to the judgement of Hon'ble Supreme Court in the following cases:- (a) Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai, reported in 2007 (6) SCC 329 (b) Union of India V/s. Rajasthan Spinning & Weaving Mills, reported in 2009 (238)ELT 3(SC) 20(C). The reliance placed on by the appellant in Dilip N. Shroff case (supra) in which it is held at para no. 35 that :- "35. Thus, it appears that there is distinct line of authorities which clearly lay down that in considering a question of penalty, mens rea is not a relevant consideration. Even assuming that when the statute says that one is liable for penalty if one furnishes inaccurate particulars, it may or may not by itself be hold to be enough if the particulars furnished are found to be inaccurate is anything more needed b the question would still be as to whether reliance placed on some valuation of an approved valuer and, therefore, the furnishing of inaccurate particular was not deliberate, meaning thereby that an element of mens rea is needed before penalty can be imposed, would have received serious consideration in the light of a large number of decisions of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. On a careful perusal of Section 15 D(b) and Section 15E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow. 21. In our view, the impugned judgment of the Securities appellate Tribunal has set a serious wrong precedent and the powers of the SENBI to impose penalty under Chapter VIA are severely curtailed against the plain language of the statute which mandatorily imposes penalties on the contravention of the Act/Regulations without any requirement of the contravention having been deliberated or contumacious. The impugned order sets the stage for various market players to violate statutory regulations with impunity and subsequently plead ignorance of law or lack of mens rea to escape the imposition of penalty. The imputing mens rea into the provisions of Chapter VI A is against the plain language of the statute and frustrates entire purpose and object of introducing Chapter VI A to give teeth to the SEBI to secure strict ....