TaxTMI 
TaxTMI 
2019 (5) TMI 817
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....the appellants guilty in respect of the transaction relating to transfer of shares in SDRPL. 3. The brief facts in the matter are as under:- i) M/s. Dominent Financial Services (P) Ltd. is a company incorporated in India in the year 2006 (hereinafter referred to as "DSL"). Shri Ashok Jain and his wife Smt. Shobha Jain are the two Directors of the company. Shri Ashok Jain is also a Director of M/s. S.D. Reality (P) Ltd., (hereinafter referred to as SDRPL), a subsidiary of DFS. The DFS sold he entire shareholding of SDRPL to M/s. M2N2 Partners (P) Ltd., (hereinafter referred to as "M2N2") Mauritius for a consideration of Rs. 11,0644,864/- (US $ 2.5 million) in the month of March, 2007. The consideration for this sale was received in the account of DFS with Dena Bank, Overseas Branch, Fort, Mumbai. Shri Mark Maletz and Shri Nitin Noharia of USA are partners of M2N2, which is a company incorporated in Mauritius. The DFS had sold 100% equity of SDRPL to M2N2 and the investment by M2N2 was treated as Foreign Direct Investment under the automatic route without any prior permission of the RBI or Govt. of India. Since SDPRL is involved in real estate business, it is alleged in the compla....
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.... iv) It is also alleged in the complaint that the share value of SDRPL and GDLL were highly over valued and shown as sale to persons resident outside India; and that the funds for acquiring the shares of SDRPL and GDLL were acquired by the DFS abroad and transferred into India in the form of foreign direct investment. As such the DFS and Shri Ashok Jain appeared to have contravened the provisions of Section 4 of FEMA, 1999. 4. The adjudication proceedings had commenced with the issue of SCN dated 23.02.2010 pursuant to the Complaint dated 19.02.2010 and the documents annexed thereto. The appellants, M/s Dominent Financial Services (DFS) and its Director Ashok Jain were proceeded against on the following charges: i. Contravention of Regulation 3 and Schedule 1 of Regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (FEMA 20/2000-RB) in respect of two transactions: a. transfer of shares in M/s S.D. Realty Pvt. Ltd (SDRPL) to M/s M2N2 Partners Ltd, Mauritius (M2N2) b. transfer of shares in Gem Distriparks & Logistics Ltd (GDLL) to M/s Balyasani SI Ltd, Mauritius; ii. Section 4 of FEMA alleging tr....
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.... on issue or transfer of security by a person resident outside India. - Save as otherwise provided in the Act or the rules or regulations made or directions made thereunder, no person resident outside India shall issue or transfer any security". On plain reading of Regulation 3, it is clear that the Regulation 3, on face of it, is not attracted as it does not apply to the appellant DFS or to SDRPL, both of them are persons resident in India, not outside India. The inclusion of Regulation-3 in the charge is misplaced in view of plain reading of said Regulation-3. 10. The appellant has also been charged with and held guilty of contravention of Reg. 5(1) r/w Schedule 1 on the sole allegation that "the transaction of sale of shares has been made without complying with the condition of the Automatic route and therefore, the purchase of shares ought to have been made only after obtaining the prior permission of the Reserve Bank of India". 11. REGULATION 5(1): A person resident outside India ... or an entity outside India, whether incorporated or not, ... may purchase shares ... of an Indian company under Foreign Direct Investment Scheme, subject to the terms and conditions specified i....
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....rstwhile OCBs, NRIs, etc. required prior permission of the Government followed by approval from Reserve Bank" "2.2. On review and with a view to make the environment in India more attractive to foreign investors and also to simplify procedures, government has decided to dispense with the requirement of prior approval of the Government (FIPB) in respect of transfer of shares... by way of sale, from resident to non-resident...of an Indian company in Sectors other than financial service sector..." "3.1. At present, the following categories of transfer of shares debentures by way of sale under private arrangement also require prior permission of Reserve Bank * Transfer by a person resident in India to person resident outside India * Transfer by a person resident outside India to a person resident in India (not applicable) "3.2. As a measure of further simplification of procedures, it has been decided to grant general permission and do away with the requirement of prior approval of Reserve bank for transfer of shares and convertible debentures in respect of the aforesaid categories, under Para 3.1, subject to compliance of the terms and conditions and reporting requirements as....
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....recreational facilities, city and regional level infrastructure), subject to the guidelines mentioned therein." (declaration of object and intent) "Accordingly,... Notification No. FEMA 20/2000-RB dated 3rd May, 2000, has been amended vide Notification No. FEMA 136/2005-RB... a copy of the Government Notification GSR No. 513(E) dated July 29, 2005 incorporating the amendment is annexed" 17. MASTER CIRCULAR ON FOREIGN INVESTMENT IN INDIA (NO. 02/2006-07 DATED JULY 1, 2006) The Master Circular issued by RBI consolidated the provisions of FEMA 20/2000 (as upto July 1, 2007) states the governing regulations in its own language at one place for easy understanding, guidance and compliance. It is not reproduction of statutory text of the regulation. Accordingly, in para 2 of Part I of the Master Circular, the activity of "Real Estate Business" is listed as one of the activities in which FDI is totally prohibited for all non-residents including NRIs. However, since FDI in the activities of townships, housing, development projects, etc. under automatic route is permitted for NRIs as well as for other foreign entities vide serial no. 2 and 23 of the Notification No. FEMA 20/2000, the p....
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....t has decided to allow FDI upto 100% under automatic route in townships, housing, built up infrastructure and construction development projects... "; (p. 135 of Paper Book) To give effect to the above policy, FEMA 20/2000 was amended by FEMA 136/2005 viz. FEM(Transfer or Issue any Security by a Person Resident outside India) (Third Amendment) Regulation dated 19.07.2005. FEMA 136/2005 added the item of "townships, housing, built up infrastructure and construction-development projects..." at serial no. 23 in Annexure B thereby permitting automatic route for FDI to foreign companies and individuals, which before the amendment was available only to NRIs. As under the Third Amendment, the automatic route in townships, housing, etc. is allowed to foreign companies subject to certain conditions, unlike FDI by NRIs vide sl. no. 2 of Annexure B, that entry (sl. no. 2) was retained unamended. 22. It is submitted on behalf of the appellant that even though in the impugned order, it is held that SDRPL has engaged in development of townships, housing, etc. and M2N2 is a foreign company, but it was held that the appellant has been held guilty of the said contravention on two counts. Firstly....
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....PL is engaged in the activity of development of townships, housing, etc. and in March 2007 when the FDI under automatic route was made by M2N2, the amended Regulation FEMA 20/2000 as issued by RBI vide their statutory Circular No. 07 of 17th August 2005 was in force and at the time the FDI was made by M2N2 in SDRPL, automatic route was available to foreign companies for purchase and transfer of shares of an Indian company engaged in the activity of development of townships, housing, etc. by virtue of the amendment of 2005, which was clarified for that purpose. 25. It is rightly alleged on behalf of the appellant that the Adjudicating Authority has held the appellant guilty in manifest disregard to the amended Annexure B of Schedule 1, read with Reg. 5(1) . Thus, Adjudicating Authority has erred by applying old pre 2005 Notification No. FEMA 20/2000, though ostensively applying the "amended‟ provision in paras 34, 41 & 49 of the impugned order. It is evident that despite express mention, in para 45, of the amended entry of townships in Annexure B for FDI under automatic route, the entry at sl. no. 23 of Annexure B of Schedule 1 applied to NRIs and not to foreign companies so ....