TaxTMI 
TaxTMI 
2024 (10) TMI 291
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....e impugned order"). The proceedings before the learned Special Director arose from a complaint dated 10.10.2011 filed by the Assistant Director, Directorate of Enforcement, Mumbai which led to issue of Show Cause Notices dated 21.10.2011 for alleged contraventions of various provisions of the Foreign Exchange Management Act, 1999 ("FEMA, 1999"). Facts in Brief 2. The relevant facts, briefly, are that the Reserve Bank of India (RBI) vide letter dated 22.04.2009 informed the Directorate of Enforcement (ED) that the Welspun Group had formed a Joint Venture (JV) in Cyprus,namely, Red Lebondal Ltd., Cyprus ("RLL Cyprus") in which the equity capital was subscribed by the following entities: Sl.No. NAME EQUITY HOLDING 1. Intech Metal SA (An entity resident outside India) 19.86% 2. Sh. B.K. Goenka 31.10% (560 shares of Euro 1 each) 3. Welspun Gujarat Stahl Rohren Ltd. 25% (450 shares of Euro 1 each) 4. Welspun Wintex Ltd. 12% (216 shares of Euro 1 each) 5. Krishiraj Trading Ltd. 12% (216 shares of Euro 1 each 3. The RBI further informed that the persons at Sl. Nos. 2, 3, 4 and 5 above had not sent remittance for subscription of....
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.... unauthorized direct investment outside India. Contravention of the provisions of Section 6(3) (a) of FEMA read with Regulation 6(2)(ii) of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 by making direct investment in an overseas JV which was not engaged in a bona fide business activity. Welspun Gujarat Stahl Rohren Ltd. Welspun Wintex Ltd. Krishi raj Trading Ltd. Contravention of the provisions of Section 6(3)(a) of FEMA read with Regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 for making direct investment outside India otherwise than provided under FEMA. Contravention of the provisions of Section 6(3)(a) of FEMA read with Regulation 6(2)(ii) of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 by making direct investment is in an overseas JV which was not engaged in a bona fide business activity. Contravention of the provisions of provisions of Section 6(3)(a) read with Regulation 6(4) of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 by extending guarantees to the jo....
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....above, he held them responsible for the contraventions by the company, and found them guilty, in terms of Sec. 42(1) of the FEMA. Based on his findings as above, in exercise of the powers conferred in him under Section 13(1) of the FEMA, 1999, he passed the impugned order imposing the following penalties: Sl. No. NAME PENALTY IMPOSED (Rs.) 1. Sh. Balkrishna Goenka Rs 2,00,00,000/- 2. M/s. Welspun Corporation Ltd.* Rs.7,50,00,000/- 3. M/s Krishiraj Trading Ltd. Rs 28,00,00,000/- 4. M/s Welspun Wintex Ltd. Rs 14,00,00,000/- 5. Sh. Balkrishna Goenka, Director of M/s. Welspun Corporation Ltd.*, Welspun Wintex Ltd. and M/s Krishiraj Trading Ltd. Rs 1,00,00,000/- 6. Rajesh R. Mandawewala, Director of M/s M/s. Welspun Corporation Ltd.*, M/s Welspun Wintex Ltd. and M/s Krishiraj Trading Ltd Rs 75,00,000/- 7. Lal T Hotwani, Director of M/s Krishiraj Trading Ltd. Rs 25,00,000/- 8. Muralilal Mittal, Director of M/s. Welspun Corporation Ltd. Rs 25,00,000/- 9. Sh. B.K. Mishra, Director of M/s M/s. Welspun Corporation Ltd Rs 25,00,000/- 10. Sh. K. H. Vishwanathan, Director of M/s M/s. Welspun Corporat....
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....d to avail a credit facility of USD 52 Mn. from ICICI, UK, which was extended by the latter subject to the condition that it be secured through corporate guarantees of the Indian entities namely WCL, WWL and KTL. Accordingly, the three Indian Entities provided the corporate guarantees on 22.12.2007 to the extent of USD 14 Mn, USD 27 Mn and USD 56 Mn. respectively. 14. RLL utilized the credit facility availed from ICICI, UK to the extent of USD 50.5 Mn. to subscribe to 1,97,11,184 unsecured fully convertible debentures of Welspun Power and Steel Ltd. (now Welspun Steel Ltd.). It is reiterated that the very purpose of establishment of RLL, Cyprus was to explore global opportunities in steel and textiles sectors, and Welspun Power and Steel Ltd. was already an established entity in the steel sector with a huge business not only in India but other countries such as Saudi Arabia, US etc. It is also submitted that the purpose of availing the credit facility, namely, to invest in the said company was also clearly stated while availing the credit facility from the ICICI, London. 15. Thereafter, the Indian entities filed Form ODI (Overseas Direct Investment) for issuance of corporate ....
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....ns challenging the return of compounding application and the impugned order. The Hon'ble Bombay High Court passed an Order dated 26.09.2013 allowing application for post facto approval in terms of Cir. No. 96 dated 28.03.2012. The Indian persons filed application for post facto approval and post facto approval for financial commitment without equity contribution was granted for the following actions: - a. Remit funds to RLL towards equity. b. Submit evidence of investment and disinvestment by RLL in CCDs. c. Submit evidence of repayment of loan by RLL. d. Discharge of corporate guarantee 21. The RBI allotted UIN on 29.01.2014. Subsequently, the RBI also granted its No-objection to strike off the name of RLL on 12.02.2014. It is contended that despite the aforesaid developments, the RBI insisted on proceeding with compounding application though the same had become infructuous in view of the Bombay HC Order dated 10.04.2014 allowing the RBI to proceed keeping parties‟ rights intact. The Compounding Authority issued an Order dated 11.04.2014, which was challenged by the appellants in WP No. 1242 of2014. 22. Since compounded amounts were ....
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....2(e) read with Regulation 6(4) to mean immediate payment or prior payment, which is a stretched interpretation of the term "contribution" and amounts to adding words to the Regulation, which is impermissible. In any event, the respondent ought to have considered the provisions of Regulation 2(e) and 6(4) in conjunction with the provisions of the Master Circular No. 1/2007-08 dated 02.07.2007, which uses the term "participation". A harmonious reading of the terms as used in the Regulations and the Master Circular makes it apparent that purchase of shares on "deferred payment basis" is not violative of the provisions of the Act and/or the Regulations, especially since investment is undertaken in a country that allows such payment. Further the Master Circular expressly allows provision of guarantee in a case where there is equity participation. In the instant case, the shares stood transferred to Indian persons concerned on 22.11.2007, with all its attendant rights and liabilities. It is submitted that the investments made by the appellants were shown in the Balance Sheet and the subscription amount that was to be paid when called upon by M/s RLL, Cyprus. As such, the provision of cor....
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....ception or fraud is required to be considered as being "bona fide". In the instant case, the business activity of investment through fully convertible debentures of WSL was bona fide and without any mala fide intent. Therefore, investment made in WSL was a bona fide business activity. It is further submitted that neither the SCN nor the impugned Order points out any specific instance of fraud and/or deception to render the activity of investment by RLL in the business of WSL as being mala fide. There are just bald and unsubstantiated allegations replete with presumptions and these cannot be used as props by the respondent for sustaining his finding that the investment by RLL was not bona fide. 29. Similarly, the findings rendered by the respondent vis-à-vis applicability of Regulation 7 of FEMA 120/200 which relates to Investment in Financial Services Sector is beyond the allegations in the SCN. In any event, the impugned order failed to appreciate that Regulation 7 of FEMA 120/2004 is not applicable to the present case on hand, since it qualifies that an Indian Entity engaged in financial services sector in India may make investment in an entity outside India subject to ....