TaxTMI 
TaxTMI 
2019 (8) TMI 133
X X X X Extracts X X X X
X X X X Extracts X X X X
....la, Advocate And Ms. Divya Jaswant, Advocate For the Respondent : Shri Rajeev Awasthi, Advocate JUDGEMENT FPA-FE-09-19/MUM/2013 1. All the appeals arise out from the common Adjudication Order No. ADJ/01-04/B/SDE/BK/2013/FEMA dated 30th January, 2013, passed by Special Director, Enforcement Directorate, Mumbai, wherein the appellants were held liable for contravention of the provisions of Section 3(b), Section 6(2), 6(3)b & Section 42(1) of FEMA, 1999 read with Regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, Paragraph 8 of schedule of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, Regulation 5 of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 and Para 9 (1)(A) of schedule 1 to the foreign Exchange Management (Transfer or issue of Security by a person Resident outside India) Regulation, 2000 and a total penalty of Rs. 98,35,00,000/- ( Rs. Ninety eight crores thirty five lakhs) has been imposed against all the appellants as mentioned in the Impugned Order. 2. The details o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h has been held to perform public functions so crucial so as to fall within the meaning of 'State' for the purposes of Article 12 of the Indian Constitution by the Hon'ble Supreme Court in Board of Control for Cricket in India v. Cricket Association of Bihar, (2015) 3 SCC 251. 6. In 2008, IPL was an entirely new sports model and entities were required to make investments into the said nascent venture, unaware of the challenges involved and unclear about the future of the business. 7. As per the Invitation to Tender ("ITT") floated by BCCI, bids were invited for eight franchises which would participate in the IPL. The bidding process was as follows: a) Indian as well as foreign bidders were permitted to bid for the said franchises; b) for the first three years, the franchises were to be operated by the successful bidders through a company incorporated in India; c) pertinently, the Appellants were the sole foreign entities to bid for the franchises and the same had also been duly recorded by BCCI; d) at the time of making the bids, the bidders, including the Appellants, were not aware whether their bids would be declared successful and theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tiny of all the information and proposed investment structure as furnished along with the bid. 12. It is not in dispute that the remittances in question have been made into India and have continued to remain in India. There has been no refund of such amounts to the investors. The Remittances, which are to the quantum of approximately INR 33 crores, have been brought into the country in the form of investment and there have been no shares issued or any other benefit accrued to investors for over 11 years since. 13. It is an undisputed position that the Remittances were utilized for the purpose for which they were made. 14. Remittance 1 and Remittance 3 (together constituting approximately 70% of the total value of the Remittances) were directly received by BCCI towards payment of franchise fee for securing the 'Rajasthan Royals' franchise in favour of JIPL. 15. Remittance 2 was received and utilized by JIPL for making the 'Rajasthan Royals' franchise operational for participation in the first edition of IPL. 16. The undisputed fact is that the 'Rajasthan Royals' franchise was awarded by BCCI to JIPL, as also the fact that they have been playing in the various seasons ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed) through which they hold their interests in JIPL which in turn owns the Franchise. The Appellants in Appeal Nos. 14, 15, 16 of 2013 (Mr. Bishwanath Bachun, Ms. Savila Sivaramen, Ms. Barabara Jaqueline Haldi, respectively) are residents of Mauritius and are were appointed as directors of EMSH to comply with the Mauritian laws. The Appellants in Appeal Nos. 17 and 19 of 2013 (Mr. Suresh Chellaram, Mr. Manoj Badale), who participated in the bid for IPL franchises that was established by BCCI, are also directors of EMSH and also hold shares of EMSH through intermediary companies. The Appellant in Appeal No. 18 of 2013 is a UK based limited liability partnership, which was controlled by Mr. Manoj Badale. Case of the respondent 22. On receipt of certain reliable information, enquiries were initiated by the Mumbai Zonal Office of the Enforcement Directorate into the functioning of the Twenty-20 Cricket Tournament known as Indian Premier League (IPL) organized by the Board of Control for Cricket in India (BCCI). Directions under section 37 of the FEMA, 1999 were issued to the BCCI on 29.05.2008 and 14.07.2008 to furnish required information. Vide letters dated 04.07.2008, 07....
X X X X Extracts X X X X
X X X X Extracts X X X X
....82,026.72 equivalent to Rs. 19,81,18,910.23 and GBP 50,000 equivalent to Rs. 38,68,500/- were respectively transferred on 21.08.2008 and 22.01.2008 totaling BGP 26,32,026.72 equivalent to Rs. 20,19,87,410.23 by appellant Manoj Badale from U.K. on behalf of M/s. Emerging Media IPL Ltd. U.K. (EMIPL) towards performance deposit. The performance of remittance as shown in the two FIRCs dated 04.08.2008 issued by HDFC Bank, Mumbai was towards tender deposit for sponsorship of teams in IPL, the name of the beneficiary was shown as BCCI-IPL in the FIRCs. It is contended that the amount of Rs. 20,19,87,410.23 was paid by appellant Manoj Badale on behalf of EMIPL, U.K., towards performance deposit for the acquisition of the franchise. Later, the franchise agreement was signed my M/s. JIPL with BCCI for Rajasthan Royals on 14.04.2008. The balance deposit of US$ 773, 480.99, after the auction, was paid to BCCI by M/s. EM Sporting Holdings Ltd., Mauritius (EMSH) on 20.06.2008. The amount paid was equal to Rs. 3,29,40,000/- and was received by BCCI in its account with HDFC bank from Standard Chartered Bank, Mumbai, which in turn received the amount from Standard Chartered Bank, Mauritiu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 shares were sold to M/s. EMIPL, U.K., and the shares have been shown as transferred in the records of JIPL on 31.12.2008. He stated that shares have not been allotted till date as RBI approval is awaited. In respect of the amount received by BCCI directly they have approached RBI for allotment of shares, however, RBI has rejected their application advising to file the same before FIPB. 23. The investors who made the inward remittances totalling to Rs. 33,22,45,444.23/- admittedly have received no equity shares having beneficial transferable interest in consequence of their remittances. 24. In order to expedite the resolution of the issues, the Appellants approached the Hon'ble High Courts (both Delhi and Bombay) on diverse occasions. There are various orders all directing an expeditious disposal of the pending issues. Further, at the pre-deposit stage, JIPL has paid an amount of Rs. 15 Crore in accordance with Order dated January 21, 2015 of the Hon'ble Bombay High Court. The Hon'ble Bombay High Court in its last Order dated August 28, 2018 has also suggested that the matter be taken up expeditiously. 25. Thereafter, the appeal hearing continued for around two years and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 30. The profiles of the Promoters of JIPL, as provided, are as follows: a) Lachlan Murdoch: Lachlan Murdoch is the CEO of IIIyria Pty Ltd., a company he founded on returning to Australia after leaving his executive positions at News Corporation in 2005. Mr. Murdoch has been a member of the board of News Corporation since 1996 and until recently was a board member of the Robin Hood Foundation in New York and sat on the executive committee of the board of the Partnership for New York. He is currently a Director of Asia Pacific Business Coalition on HIV/AIDS. Mr. Murdoch holds dual US and Australian passports and lives in Bronte, Australia, with his wife Sarah and two sons, Kalen & Alden. Mr. Murdoch holds a Bachelors Degree in Philosophy from Princeton University, USA. b) Suresh Chellaram: Suresh Chellaram is the managing director of Chellarams Plc, a company founded in Nigeria in 1923. The family group, founded by his great grandfather Kishinchand Chellaram, has it's business roots in Madras. He was born in 1956 in Mumbai, India, educated in Eastbourne College, UK and then at the University of San Diego, CA USA. Chellarams Plc is primarily a d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o BCCI through normal banking channels ("Remittance 1"). In the bid documents, the proposed corporate structure was indicated by EMIPL. The Invitation to Tender specified that in case of any successful bid, the performance deposit would be considered as part franchise fees of the relevant franchise. b) Once EMIPL was informed that they had won the RR franchise, JIPL (an Indian entity) was incorporated on 08.03.2008 (as an operating company in India was required under the BCCI regulations) and on 14.04.2008, JIPL signed a franchise agreement with BCCI. It is important to note that it was the BCCI regulations that stipulated that the performance deposit (that is Remittance 1) would be treated as part payment of franchise fee by the RR franchise i.e. JIPL in this case. c) On allotment of the franchise, JIPL was immediately asked to buy players to form a team and prepare to play the tournament. For this JIPL required working capital and in April and May, 2008, ND Investments LLP, UK (appellant in Appeal No. 18/2013) and Manoj Badale remitted an amount of Rs. 9,73,18,034/- into JIPL with the concurrence of all the Promoters ("Remittance 2"). d) On 05.05.2008, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of Remittances, whereas the said inward Remittances were made by entities other than EMSH; that two out of the three Remittances were received in India directly by BCCI (i.e., an entity other than JIPL); and that RBI/FIPB did not grant permission for issuance of shares to EMSH against the said Remittances. According to the Respondent, all the three Remittances ought to have been made by EMSH and ought to have been received by JIPL. 35. As per Impugned Order, the following are the violations: I. Section 6(3)(b) of FEMA read with Regulation 5(1) of Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 ("TISPRO") and Para 8 of Schedule 1 thereto and also read with Regulation 5 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 ("PCAT") issued under Section 6(2) of FEMA to the extent of Rs. 33,22,45,444/-. II. Section 6(3)(b) of FEMA read with Regulation 5(1) of TISPRO and also read with para 9(1)A of Schedule 1 thereto to the extent of Rs. 33,22,45,444/-. III. Appellants for Appeal Nos. 10, 11 and 12 of 2013 are deemed to have contravened the above provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers invested in a nascent sector, in which foreign investment was allowed through the automatic route. The money has been received in India and has been put to use in India for their requisite purpose, thereby contributing to the Indian economy. The Promoters had a bona fide purpose in applying and risking their money in an unproven sector in India to assist in the growth and promotion of sports and the game of cricket in particular. b) Clarity on investment structure: It is submitted that from the time of the bid, made through the Letter of Eligibility, dated 22nd January, 2008, it has always been the intention of the Promoters that the investment into the Indian company would be through a joint venture company established in Mauritius. The structure and all detailed information were annexed to the bid. The objective behind having a joint venture holding entity in Mauritius was because the promoters intended that the business would capitalize on cricket in the overseas markets and use the franchise team as first step towards this objective. Further, the objective was also to engage in the business of event management, conducting, managing and organizing internati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lding of JIPL, was not incorporated and the banks accounts were not operational. Remittance 3 was at a time when BCCI wanted the relevant funds within a very short timeline. ii. Remittances 1 and 3 were received directly by BCCI. All Remittances were made through normal banking channels, from eligible persons, in terms of tender conditions. The money brought into India has been used for the stated purpose i.e. the IPL tournament. The brand value of the IPL has grown manifold since its inception with the support of the Appellants. iii. Section 6(3)(b) relates to transfer or issue of any security by a person resident outside India and therefore is not attracted to the present case since JIPL (the entity that is supposed to issue the shares) is an Indian entity. iv. Regulation 5(1) of TISPRO applies only to a situation where a non-resident purchases shares or convertible debentures of an Indian company. At the outset, this regulation talks about purchase of securities of an Indian company and it is not applicable to the Appellant. JIPL is not an entity that is selling its shares. In the present case, all the Remittances have been treated as share application....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thakur (Appellant in Appeal No. 10/2013), Mr. Castellino (Appellant in Appeal No. 11/2013) and Mr. Iyer (Appellant in Appeal No. 12/2013) are sought to be penalised under the provisions of Section 42(1) of FEMA. The ingredients of Section 42(1) are that, if the Company commits a contravention of the provisions of FEMA, whoever, at the time of the contravention was in charge of and responsible to the Company for the conduct of the business of the Company shall be deemed to be guilty of the contravention. The assumption of the guilt is rebuttable if the person in question proves that the contravention took place without his knowledge and that he exercised due diligence to prevent such contravention. a) In the present case, the proceedings have been conducted on the basis that the aforesaid three individuals were responsible to the JIPL for the conduct of the business of the company. The present case is one of imposition of penalty and it is therefore critical that all of the ingredients of the offence are duly made out and fully substantiated/evidenced. In the facts of the present case, the Impugned Order does not establish the ingredients of the offence in respect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....directors. The Impugned Order also does not provide any reasoning on why varied amounts of penalty have been provided for the respective individual Appellants. iii. The burden of proof of the Respondent is well settled inter alia, by the following judgments, each of which require the Respondent to fully establish the ingredients of the offence before a penalty can be imposed under Section 42(1). In terms of the settled law no penalty can be imposed on the three individuals in question: o Ajay Bagaria v. Union of India, [2008 (103) DRJ 324] o Umesh K. Modi v. Deputy Director of Enforcement [2014 (3 ) JCC 2028] o Shahshank Venkatesh Manohar vs. UOI & Directorate of Enforcement; 2013 (5) AIIMR 551; 2013 (8) TMI 435. iv. In order to charge a person under Section 42(1) of FEMA, the Respondent has the onus to establish that the respective individual should have been in charge and had knowledge of the respective violation. Reference in this regard is made to the judgment in the matter of Ajay Bagaria v. Union of India, [2008 (103) DRJ 324]. The same has definitely not been proved by the Respondent. On the contrary, the roles of the directors in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers. v) After being awarded the franchise, immediately BCCI required the franchise to bid for players, form a team and prepare for the tournament. There was a requirement to build the brand name, market etc. One of the main reasons for Mr. Barthakur to be brought in was his expertise in revenue generation and in public relations. Mr. Barthakur's role in JIPL was restricted to management, revenue generation, brand building, promoting and advertisement. JIPL signed the franchise agreement with BCCI on 14th April, 2008. vi) Mr. Barthakur is the Chairman and one of the directors of JIPL and he has always had a strategic overview role in the company. He has never been responsible for matters of regulatory compliance on a day-to-day basis. There had been a compliance team in place that was trying to manage the compliance requirements and issues being faced. Mr. Barthakur's role in JIPL was in relation to management, revenue generation, brand building, promoting and advertising. vii) Accordingly, it is submitted that Mr. Barthakur was never party to, nor did he control or take any decision with regard to the Remittances. In light of the above, Mr. Barth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....viii. Mr. Castellino ceased to be a director of JIPL on 1st October 2008. Subsequently he was not involved with the business or activities of JIPL. As per his role, he was not responsible for matters of regulatory compliance on a day-to-day basis. In light of the above, for Mr. Castellino should not be considered to be in violation and accordingly should not be required to pay any penalty. The penalty imposed under the Impugned Order is completely unjustified. 41. Submissions on behalf of Mr. Raghuram Iyer (Appellant in Appeal No 12/2013): i. Mr. Iyer is a prominent professional involved in the sports marketing sector. Mr. Iyer first met Mr. Badale in 2007. He then started working with Mr. Badale in Mr. Badale's cricket related business in India, being initially the "Cricket Star" TV programme and then he also became involved with the IPL franchise project. Mr. Badale had informed Mr. Iyer about the opportunity arising out of IPL tender floated by the BCCI in December 2007. ii. It was in this context that Mr. Badale requested, and Mr. Iyer agreed to work within the franchise in a sales and marketing role. However, it is important to note that he was ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uct of appellants. They cannot get upon by taking the shelter of BCCI. He argued that the appellants had tried their best to take the approval from RBI and concerned authority for the last ten years but they are not successful. He has referred large number of applications made by them. 44. It is correct that on 22.07.2009 M/s. JIPL filed an application before the FIPB seeking approval for issue of 1983 shares to M/s. EMSH, Mauritius for Rs. 3,29,40,000/- (US$7,73,480.99) which was paid by the aforesaid company to BCCI towards franchise fee and for issuing 12159 shares to M/S. EMIPL, UK for Rs. 20,19,87,410 (GBP 25,82,026.72 + GBP 50,000) which was paid by the said M/s. EMPIL, UK to BCCI towards performance deposit. The said application of JIPL was rejected by the FIPB vide their letter dated 23.11.2009 stating therein as under :- "I am directed to refer to your letter dated July, 22,2009 on the above mentioned subject and to state that your proposal has not been acceded for the reason that the Company could not provide satisfactory proof of receipt of foreign exchange despite ample opportunities". 45. Thereafter, JIPL filed an application before the RBI on 28.10.2009....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter-alia informed JIPL that the performance deposit payment made to BCCI by Mr. Manoj Badale on behalf of EMSH and franchise fee paid by EMSH can be at best treated as pre-incorporation expenses of JIPL an disuse of shares to non-resident investor would tantamount to capitalization of preincorporation expenses which was not under the ambit of the general permission under the extant FDI policy. The RBI, therefore, advised JIPL to submit post-facto approval from the FIPB. 48. JIPL vide their letter dated 28.07.2010 addressed to RBI informed RBI that their application of FIPB was rejected by FIPB vide their letter dated 24.05.2010. Various correspondences were made between JIPL and the RBI, but RBI did not give permission to M/s. JIPL to issue shares to EMSH against the said 4 remittances. It appears that the foreign investors and JIPL have not followed the prescribed mode of payment under the regulations made under FEMA for FDI in equity. It is obvious that all the applications made by JIPL to FIPB and RBI seeking approval to issue shares to foreign investors were rejected. The report required to be filed to the RBI in connection with the receipt of the foreign remittances has als....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 50.3 Attention of the Tribunal is invited to Annual Review Report of year 2008, issued by the FIPB (furnished to the Tribunal during arguments in the form of a compilation of FIPB Reviews) wherein cases similar to that of the instant case have been approved: i. In the case of M/s Mitsui & Co. India Pvt. Ltd, FIPB has agreed to offset a security deposit paid and allow shares to be issued to the parent company. This is the exact situation in the present Remittance 1. ii. In cases of M/s Diamond Electric India Pvt. Ltd, M/s BBI Krishnapatnam Company Pvt. Ltd., the FIPB has granted approvals for issuance of shares to foreign companies by the Indian entity in respect of payment of advance money, preincorporation expenses, etc. However, even after a specific approval being sought in the present case, no approval was granted by the FIPB while it was granted for similar cases. In the said report, FIPB itself recognizes the fact that policy guidelines in this respect are unclear and need further clarification. 50.4 After reviewing all relevant documents and adequate deliberations with JIPL, RBI had provided approval on July 02, 2012 for issuance of share....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut no report has been filed to RBI in connection with the remittances of GBP 26,32,026.72 from Mr. ManojBadale made to BCCI as performance deposit and US$773,480.99 made by EMSH, Mauritius to BCCI as franchise fee against which shares were sought to be issued to EMSH. As regards the said 4 remittances made by M/s. ND Investments, LLP and Shri Manoj Badale to JIPL against which shares were sought to be issued to EMSH, JIPL reported these remittances to RBI, through Axis Bank, Mumbai only on 20.11.2009 i.e., after 1 year and seven months after the receipt of these remittances. Statements of Frasar Castellino, Satyen Saraswat, Manoj Badale, Suresh Chellaram, Ratnakar Shetty, N. Srinivasan, Ms. Manish Budhwant & Vaibhav Karmarkar were recorded by the Enforcement Directorate. 51.1 Under section 6(3)(b) of FEMA read with Regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 and para 8 of Schedule 1 thereto read with Regulation 5 of Foreign Exchange Management (Permissible Capital Account `Transactions) Regulations, 2000 issued under section 6(2) of FEMA to the extent of Rs. 23,49,27,410.23 and (ii) for the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity by the impugned order dated 30th January, 2013 held the appellants liable for contravention of the provisions of Section 3(b), Section 6(2), 6(3)b & section 42 (1) of FEMA, 1999 read with regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, Paragraph 8 of Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, Regulation 5 of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 and Para 9(1)(A) of schedule 1 to the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000 as mentioned in the Impugned Order. The Adjudicating Authority has imposed a total penalty of Rs. 98,35,00.000/- (Rs. Ninety eight crores thirty five lakhs) against all the appellants namely : M/s. Jaipur IPL Cricket Pvt. Ltd., as Rs. 32,30,00,000/- (Rs. Thrity two crores thirty lakshs), Mr. Ranjit Barthakur as Rs. 6,40,00,000/- (Rs. Six crores forty lakhs), Mr. Raghuram Iyer as Rs. 5,10,00,000/- (Rs. Five crores ten lakh), Mr. Fraser Castellino as Rs. 6,40,00,000....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs dated 23.12.2009 have clearly emphasized the requirement of the appellant to get the remittance approved by FIPB. RBI on various dates have asked for various documents and explanation in relation to the said transaction. However, till date no special permission has been granted and admittedly no general permission exists for allowing the nature of transaction in the present case as stated by RBI in its letter dated 14.06.2010. FIPB has categorically disapproved the remittance vide its letter dated 24.05.2010. It is also submitted that no legal remedy against the said opinion of FIPB has been claimed by the appellants. It is also noted that FIPB vide its letter dated 23.11.2009 has made a categorical finding that the company could not provide satisfactory proof of receipt of foreign exchange despite ample opportunities given to them, which is mentioned in the Impugned order. Further, submission is that the approval of Foreign Investment Promotion Board (FIPB) is mandatory as the transaction does not fall under the automatic route. 56.1 With regard to first remittance, it is submitted that contravention of the provisions of FEMA read with FEM (Transfer or Issue of Security by a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant ineligible to issue share to EMSH for non-fulfillment of the conditions specified by RBI. Further submission is that sub-section 2 of section 15 of FEMA refrains further proceedings only if the contravention has been compounded, the Special Director at para 79 and 95 of the Impugned Order is in line with the above and allowed such investment from third party subject to payment of penalty under the present proceedings which has not been complied with. 56.3 With regard to third remittance, it is submitted that the remittance was made by EMSH to BCCI directly on 20.06.2008, whereas the JIPL was incorporated on 08.03.2008. The appellants have not provided any satisfactory explanation as to why the said remittance was made to BCCI in spite of the legal existence of the JIPL. It is further submitted that issue of shares for payment made to any third party is not permitted under the provisions of FEMA. 57. On behalf of appellants, it is denied that the holding company of JIPL, i.e., EMSH is based out of Mauritius and it has been baselessly alleged that the entire investment has been structured to evade tax. It is submitted that such a contention has been raised with the sol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ender conditions prescribed by BCCI, was required to be made to enable participation in the bidding process for the IPL franchises. At the time of making Remittance 1,there was no occasion for incorporation of JIPL or EMSH, as the Appellants were not aware whether their bids would be declared successful. It is submitted that there was no other way for the Appellants to participate in the bidding process, except to make Remittance 1 directly to BCCI in January 2008. In light of the above, it is further submitted that the Impugned Order fails to establish any contravention of the provisions of FEMA and Regulations made there-under as invoked against the Appellants. Assuming but not conceding that provisions of FEMA and Regulations made thereunder can be said to have been contravened as alleged, it is submitted that the said alleged contraventions are ex facie technical and venial in nature. While considering imposition of penalty in the present quasi criminal proceedings, the established principles of proportionality are mandatorily required to be adhered to and the exercise of discretion while determining the quantum of penalty must be fair, objective and based on relevant consid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....remittance vide its letter dated 24.05.2010. No legal remedy against the said opinion of FIPB has been initiated by the appellants. FIPB vide its letter dated 23.11.2009 has made a finding that the company could not provide satisfactory proof of receipt of foreign exchange despite ample opportunities given to them, which is mentioned in the Impugned order. c) The approval of Foreign Investment Promotion Board (FIPB) is mandatory as the transaction does not fall under the automatic route, as per the case of the respondent. Even, as per the conduct of the appellants is seen virtually the stand of automatic route was given up in view of seeking the permission twice which were rejected. d) Payment was not received by the person issuing the shares; Remittance was not reported within 30 days of receipt of remittance; Amount was not refunded within 180 days from the date of receipt of the inward remittance (shares not issued). The said fact is not denied by the appellants. e) The investments have been shown as "Foreign Direct Investment in India in equity" and the expenditure incurred were considered as pre-incorporation expenses being expenditure made prior to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bject and scheme is that FEMA was promulgated inter alia with the objective of 'facilitating external trade and payments', as evident from a perusal of the Statement of Objects and Reasons of FEMA. Further, the scheme of FEMA is inter-alia reflected in Section 6(3) of FEMA, which empowers the RBI to either 'prohibit, restrict or regulate' the activities enumerated thereunder. FEMA was promulgated with the object of providing the framework for addressing the following three categories of activities: a) Provision for activities which are 'prohibited' - where FEMA provides for prohibition of certain activities, where the prohibition on such activities is absolute in nature and contravention thereof must be construed seriously and attract highest permissible penalty -such as Regulation 4 of PCAT and provisions under which foreign investment in agricultural sector is prohibited; b) Provision for activities which are 'restricted' - where FEMA provides for strict compliance with the laid down procedure and contravention thereof would attract lesser penalty as compared to category (a) above - such as Rule 3 of Acquisition & Transfer of Immovable Property Outside India Reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ements. It has been held that in order to attract the deemed liability as envisaged under Section 42(1) of FEMA, it must be proved that the person concerned have been in day-to -day management of the company at the time the contravention occurred. All the individuals arrayed in the present case do not satisfy the criteria law laid down by the Apex Court and other High Courts under Section 42(1) of FEMA, so as to attract deemed liability and attract imposition of penalty. Against all individuals arrayed, the case has not been proved that they were involved in day-to-day management of JIPL or EMSH at the time the alleged contraventions took place, i.e., January - June 2008. In the present case, as per the Impugned Order, penalty is imposed upon directors in the companies in a routine manner without recording any valid finding as per settled law. The penalty has been imposed on some individuals who were not even associated with the said companies at the time the alleged contraventions occurred. 63. Meaning thereby, as appeared from the present case, I am of the view that it is not open to the Respondent to invoke Section 42 (1) of FEMA and impose penalty on individuals on the sole ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a bank account and received and remitted foreign exchange in the said bank account without the permission of RBI, while organizing the second edition of IPL in South Africa. Consequently, penalty was inter alia sought to be imposed on the Appellant thereat, Shashank Manohar, in exercise of powers under Section 13 read with Section 42 of FEMA, solely on the basis that Shashank Manohar was the President of BCCI during the relevant period and was hence in charge of, and responsible to, the BCCI for the conduct of business of BCCI. The Hon'ble Bombay High Court, rejected the basis on which penalty was sought to be imposed, and held as under: "34. Since the provisions of Section 42 of the Act are in parimateria with the provisions of Section 141 of the Negotiable Instruments Act, 1881, the principles laid down by the Supreme Court in S.M.S. Pharmaceuticals Ltd. Vs Neeta Bhalla and another, (2005) 8 SCC 89, are required to be applied to FEMA cases also. The Supreme Court has in terms held that the liability is cast on persons who may have something to do with the transaction complained of and not on the basis of merely holding a designation or office. It would depend on what ro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of "every person" the section would have said "every director, manager or secretary in a compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion, in question, by themselves or for the benefit of the company directly or indirectly while imposing the penalties. Similarly, the conduct of good faith, honesty and mens rea cannot be excluded from consideration while quantum of imposing penalties. 70. In light of the parameters clearly laid down by the Hon'ble Supreme Court and various High Courts regarding the standard and burden of proof required to be discharged for invocation of deemed liability under Section 42 (1) of FEMA, the imposition of penalty on all the individuals arrayed herein is liable to be set aside on account of non-compliance with the said established parameters. 71. There is no specific role discussed, as mandatorily required under section 42 of FEMA and as per the judgment in the case of Shahshank Venkatesh Manohar v. UOI & Directorate of Enforcement; (2013 (5) AIIMR 551; 2013 (8) TMI 435), as far as individual Appellants are concerned. There is no evidence brought on record, nor is there any reasoning qua the specific roles of directors, which may justify the invocation of Section 42 of FEMA, irrespective of merit of case. Therefore, in lieu of the above positions, the findings outlined in the Imp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....having force within the territory of India. Appellate Tribunal has rightly understood the situation and held that there was no other way of doing this business, which means that on truthful disclosure from time to time to Reserve Bank of India, it ought to have granted approval as done in other instances and to similarly placed business enterprises. Learned Counsel for the appellant would emphasise that in such circumstances, invariably the permission is being granted, but unfortunately, in these three instances, the same yardstick had not been applied. Evidently, realising that the appellant could not have transacted these matters otherwise, only nominal penalty had been imposed. Having conceded this point, the Tribunal was not in order in imposing even the reduced penalty. Hence, when the amounts disbursed belonged to foreign ship owners/agents, and the Tribunal having found that there was no other way of doing this business and as appellant has made timely disclosures to Reserve Bank of India, the appellant succeeds." (Emphasis supplied) Since there was no other way for the Appellants to participate in the bidding process for the IPL franchises organized by BCCI exce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e neither criminal nor quasi criminal in nature; whereas the present proceedings are initiated under FEMA, which proceedings are quasi criminal in nature; - Secondly, the provision under which penalty was imposed in Shriram Mutual Fund (Section 15-D, SEBI Act, 1992) is couched in absolute terms (using the expression '... shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less')whereas the Section 13 of FEMA is couched in discretionary terms, and vests the regulatory authorities with discretion to impose '... a penalty up to three times the sum involved in the contravention ...'; - Thirdly, the Court in Shriram Mutual Fund had itself observed that penalty would get attracted only once the contravention was established; and further held that quantum of penalty to be imposed once the contravention was established was still a matter of discretion to be exercised in compliance with the settled principles of proportionality governing exercise of such discretion. - Fourthly, the Court in Shriram Mutual Fund had specifically come to the conclusion that there had admittedly been a 'con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee. The approach of the assessing officer in this behalf must be fair and objective." 110.Moreover, in Hindustan Steel Ltd.v.State of Orissa[(1969) 2 SCC 627], this Court made the following observations: (SCC p. 630, para 8): "8. ... An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CI. He informed the Promoters had together bid for one of the franchises for the IPL. The Promoters had placed the franchise bid through EMIPL, a company in the United Kingdom in which Mr. Badale was the Chairman and sole shareholder. 78. Mr. Barthakur later learned that the tender document had required the bidder to deposit a performance deposit amount equivalent to Remittance 1 and that Mr. Badale had organized for the payment of the deposit amount to BCCI on behalf of the Promoters. Remittance 1 was a payment made prior to the incorporation of the Indian franchise operating company and its holding company and therefore before Mr. Barthakur being involved or being part of the venture. 78.1 Once BCCI awarded the franchise to the Promoters on 24.01.2008, Mr. Badale contacted Mr. Barthakur and introduced him to Mr. Fraser Castellino and the Promoters. After being awarded the franchise, immediately BCCI required the franchise to bid for players, form a team and prepare for the tournament. There was a requirement to build the brand name, market etc. One of the main reasons for Mr. Barthakur to be brought in was his expertise in revenue generation and in public relations. Mr. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... tender document required the bidder to deposit a performance deposit amount of Remittance, Mr. Badale organized for the payment of the deposit amount to BCCI on behalf of the Promoters. v) Remittance 1 was a payment made prior to the incorporation of JIPL and its holding company and therefore before Mr. Castellino being involved or being part of the venture. vi) Once BCCI awarded the franchise on 24th January 2008, Mr. Badale introduced Mr. Castellino to Mr. Ranjit Barthakur (another business associate of Mr. Badale). After being awarded the franchise immediately BCCI required the franchise to bid for players, form a team and prepare for the tournament. There was a requirement to build the brand name, market etc. One of the main reasons for Mr. Castellinoto be brought in was his expertise in managerial operations and marketing. Mr. Castellino's role in JIPL was as such thus restricted only to setting up of the business and marketing the franchisee. JIPL signed the franchise agreement with BCCI on 14th April, 2008. viii) Mr. Castellino ceased to be a director of JIPL on 1st October 2008. Subsequently he was not involved with the business or activities of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g any penalty on him under section 42(1) of FEMA is completely against the tenets of law and completely unjustified. The same is deleted/removed. 81. BISHWARNATH BACHUN: i) Mr. Bachun was merely a representative of the EM Shareholder and the IIyria Entity (together with Mr. Badale, Charles Mindenhall, Ron Reynolds and Paul Wilson). He had agreed that he would be acting for and on behalf of the shareholders that he is representing. He did not have any role in the daily operations of EMSH and was merely one of the ten directors of EMSH and thus was not in overall control of EMSH's business. ii) Additionally, Remittance 1 and Remittance 2 were also made at a time when Mr. Bachun was not even involved with the affairs of the group. Further, in respect of Remittance 3, it is submitted that Mr. Bachun was not involved in decision as to when and where the Remittance in question was to be made. 82. SAMILA SIVARAMEN: i) Ms. Sivaramen was merely a representative of Tresco International Limited, one of the shareholders of EMSH. She did not have any role in the daily operations of EMSH and was merely one of the ten directors of EMSH and thus was not in overall ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the letter of eligibility clearly stated the scheme of investment, it was amply clear that EMSH will be eventually established and would become a holding company of JIPL. Therefore, the intention of routing money through offshore entities for the financial needs of JIPL was clearly set out. Thus, when there was a requirement of any payment to be made in relation to the Franchise it was only inevitable that the money would be arranged by the Promoters. In such a scenario, such remittance made was purely a business decision and was not a deliberate act by the Mr. Chellaram to flout any law or regulation in force at that point in time. It is further submitted that Remittance 3 was made by EMSH itself. The penalty is wrongly imposed and the same is deleted. 85. MR MANOJ BADALE i) Insofar as EMSH is concerned Mr. Badale was merely a minority shareholder and one of the ten directors thereof and therefore was not in overall control of its business. In case of ND Investments LLP, UK, Mr. Badale, was merely one partner and a director. ii) Mr. Badale at all times, was under the bona fide belief that the Remittances made by him were legal and were m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntraventions which can at best be treated as technical and venial huge penalty three times is untenable and unsustainable in the facts and circumstances of the nature of the case. The details are that - a) No loss has been caused to the exchequer in the present case. b) The Remittances have come into India and continued to remain in India. This is not a case where foreign exchange has gone out of India; c) The Remittances were utilized for the purposes for which they were intended. There is not even an allegation of misutilization of the monies for extraneous purposes; d) The entities which made the said Remittances have not gained any benefit whatsoever and instead suffered considerable financial detriment as shares having beneficial transferable interest have not been issued against the said Remittances to the said entities for the past 11 years. e) The 'Rajasthan Royals' franchise has participated in the IPL tournament since 2008 and no other allegation of contravention of provisions of FEMA or Regulations made there-under have been made against the Appellants. f) The country has not lost any revenue. 87. In case, all t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in relation to imposing the penalties is modified accordingly by reducing the penalties to be paid in the following manner:- Appeal No. Name of the Appellant Penalty Imposed (Rs. in Crores) Penalty as per this Tribunal's Order (Rs. in crores) 9/2013 Jaipur IPL Cricket Pvt. Ltd. (JIPL) 32.30 7.00 10/2013 Ranjit Barthakur 6.40 1.00 11/2013 Raghuram Iyer 5.10 Nil 12/2013 Fraser Castellino 6.40 1.00 13/2013 EM Sporting Holdings Ltd. (EMSH) 18.90 2.00 14/2013 BishwarnathBachun 2.45 Nil 15/2013 SamilaSivaramen 2.45 Nil 16/2013 Barbara Jacqueline Haldi 2.45 Nil 17/2013 Suresh Chellaram 3.70 Nil 18/2013 M/s. ND Investments LLP 2.00 2.00 19/2013 ManojBadale 16.20 2.00 TOTAL 98.35 15.00 92. As far as the imposition of penalty is concerned, the appellants have already deposited a sum of Rs. 15 crores with the respondent as consolidated amount on behalf of all the appellants as a pre-deposit in view of order passed by the Hon'ble Bombay High Court dated 21.01.2015. Considering the overall facts and circumstances, the appeals are ....