TaxTMI 
TaxTMI 
2025 (8) TMI 720
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....1999") to challenge the order dated 11.09.2019 passed by the Special Director, Directorate of Enforcement imposing penalty of Rs. 230,00,00,000/- on M/s PricewaterhouseCoopers Pvt. Ltd. Rs. 23,00,000/- on Shri Deepak Kapoor, Ex-Chairman of the aforesaid Company. The penalty of Rs. 11,00,000/- has been imposed on Shri Shyamal Mukherjee, Chairman of the Company and Rs. 5,00,000/- on Shri Ramesh Rajan, Ex- Chairman of the Company. The penalty of Rs. 60,000/- has been imposed on Shri Ambrish Dasgupta, Ex-Executive Director of the Company, the penalty of Rs. 1,00,000/- has been imposed on Ms. Satavati Behera, Director of the Company and Rs. 10,000/- on Shri Shivam Dubey, Ex- employee of the Company for contravention of Section 6(2), 6(3), 9(b), 10(5), 10(6) and 42 of the Act of 1999 read with para 1(1)(i) of the Schedule-I of Regulation 4 of the Foreign Exchange Management (Foreign Currency Account by a Person Resident in India) Regulations 2000 ( in short "the Regulation of 2000"). 2. The case was initiated on an information received by the respondent that M/s PricewaterhouseCoopers Pvt. Ltd. (in short "the PWC") has received Foreign Direct Investment (FDI) running in crores in the ....
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....ask of the enforcement is left to the Director of the Enforcement but it is the RBI alone that it has to decide whether its permission may be or may not be required. The conclusions arrived by the respondent in the impugned order is in the teeth of the view taken by the RBI on receipt of grant by the appellant which do not contravene the provisions of the Act of 1999 and on the aforesaid ground also, the impugned order deserves to be set aside. 6. Coming to the facts and the provisions in reference to it, it was submitted that appellant has received the grants for business and operational purposes which is not prohibited under the law and much less the provisions of Foreign Contribution (Regulation) Act, 2010 ( in short "the FCRA") which is the relevant statute dealing in the foreign contribution. Section 3 of the FCRA provides list of the persons who cannot receive foreign contribution in India. The appellant company does not fall in any of the categories given under Section 3 of the FCRA and otherwise Section 4 of FCRA exempts certain categories of foreign contributions from the prohibition specified under Section 3 of FCRA. In any case, the appellant was not falling in any of....
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....llant for receipt of the INR 230 crores revealed that grant amounts were received purely as a one-way transfer of funds under the respective grant amounts and not in lieu of the network service charges paid by the appellant. The appellant company was receiving grant under the GAs and thus does not qualify as investment so as to consider it to be CAT. In fact, grant amount has been utilized by the appellant for business and operational purposes. In absence of any prohibition and none has been identified for the prohibition, the grant amounts are entirely permissible. The reference of the Capital Account transaction under Section 2(e) of the Act of 1999 was also given and similarly the Regulation 2000 may be applicable in the case. It was submitted that the grant by the appellant could not have been taken to be capital account transaction requiring RBI's approval for inward remittance. In fact, the Indian companies regularly receive foreign exchange fund as a grant, therefore, considering the grant to be capital account transaction, the penalty has been imposed while the amount remitted to the company does not qualify as capital account transaction. The respondent erroneously conside....
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....d 08.03.2018 titled as "Investigation under the provisions of Foreign Exchange Management 1999 against M/s PricewaterhouseCooper Pvt. Ltd." and sought opinion of the RBI as to whether receipt of foreign funds in the name of grants are in violation of the Act of 1999. The respondent did not disclose the letters of the RBI dated 07.11.2017 and 03.04.2018 in response wherein it was stated that receipt of grants by an Indian entity from an entity based out of India does not fall within the purview of the Act of 1999 and its regulations but is regulated under FCRA. 15. Further, the respondent has wrongly presupposed that the amount of Rs. 175 crores received in the EEFC account is an investment which is not permissible under the Regulations of the Act of 1999. The respondent has erroneously applied the unamended version of the Foreign Currency Account Regulations in its show cause notice that existed in the year 2000 wherein only 50% of the normal inward remittance through banking channels to be credited under the EEFC account, however, the time period during which the appellant received the amount under the GA-3 onwards in the EEFC account, the Amended Regulations dated 07.06.2007 w....
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....as taken by appellant no.1 however, the separate arguments taken by each appellant will be discussed while recording the finding. Arguments of the Counsel for the respondent: 20. The Counsel for the respondent vehemently contested the appeal. The Ld. Counsel for the respondent at the outset raised argument on alleged violation of the Adjudication Rules. A reference of Rule 4(3) and 4(4) of the Adjudication Rules was given with the submission that both the provisions were duly complied and for that they placed reference to the judgment of the High Court of Bombay in Writ Petition No. 5305 of 2013 "Shashank Manohar versus Union of India" dated 07.08.2013. 21. The respondent issued the show-cause notice dated 16.07.2018. It was issued by the Office of the Special Director, Eastern Region indicating the nature of contravention committed by the appellant and the provisions of the Act of 1999 and Regulations 2000. A specific reference of paragraph 7 of the show-cause notice was given to call upon the appellant to file reply within 30 days from the date of receipt of the show-cause notice. The appellant was required to submit its submission by 15.8.2018 but reply was not submitte....
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....the issue of contravention of the Act of 1999 was taken note of by the Supreme Court, however, no opinion on the report qua exoneration or otherwise has been expressed. 24. It is submitted that the appellant had contravened the provisions of the Act of 1999 and Regulations 2000 which is reflected from the material on record. The appellant entered into 12 agreements from time to time out of which first two agreements were in the name of Grant Agreements dated 25.04.2007 and 10.12.2008. It was Capital Account Transactions (CAT). The remaining remittance under different GA's were credited to EEFC account in contravention of the Regulations of 2000 as amended and accordingly charges were made against the appellant in the show-cause notice dated 16.07.2018. It was for contravention of Regulation 4 of the Foreign Currency Account Regulations 2000 (referred to as "EEFC contravention") and further in reference to Section 6(2), 6(3) and 10(6) of the Act of 1999 and "Capital Account Transactions Contravention". 25. Highlighting the two contraventions against the appellant, the issue regarding EEFC contravention was raised in reference to the Regulations 2000. Reference of Section 4 of ....
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.... account. The specific reference of the statement of Mr. Praveen Mohan Dayal, Senior VP, HSBC Bank was given where he stated that grant not being earnings and hence is not permissible to credit EEFC account. The fact aforesaid was corroborated by the statement of Mr. Pappu Shastry, VP, Royal Bank of Scotland wherein he testified that the inward remittance of USD 16,43,149 received on 14.04.2016 from PwC, Netherlands was credited to EEFC account based on the information provided by the appellant that it is towards professional services rendered by it to the remitter. 29. The Counsel for the respondent then gave bifurcation of the inward remittance to show that inward remittance made in the year 2011 and thus is to be governed by the Regulations of 2007. However, inward remittances made in the year 2016 was to be governed by Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations 2015, which came into force since 21.01.2016. Relevant part of the Regulations was referred to indicate as to how inward remittance is to be governed with further reference to Clause 1 of GA's dated 14.03.2016. It was to indicate that the grant was provided to the....
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....t of companies eligible for FDI and therefore, the appellant's company was required a prior approval of the RBI. 31. Ld. Counsel for the respondent further referred to the clandestine routing of the Capital investment by the appellant. It was submitted that inward remittance received by the appellant was not reflected as grant in its books till 2015-16. The modus operandi was to clandestinely route the capital investment through its accrued income account and finally to show in the head of "Miscellaneous Receipts". The reference of the order of the Disciplinary Committee dated 15.10.2019 was given. However, it is not referred because order of the committee was given at the stage of final arguments without the leave of the Tribunal. In any case, the Ld. Counsel for the respondent prayed for dismissal of the appeals having no merit in it and concluded his arguments. Findings of the Tribunal: 32. We have considered the rival submissions and scanned the records carefully. We would first take up the allegation for violation of Rule 4(3) and 4(4) of the Adjudication Rules. 2000. According to the appellants, Rule 4(3) and 4(4) of the Adjudication Rules, 2000 has not been followed....
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....reof to the noticee. When reasons are not required to be recorded in writing, the question of its supply does not arise. 35. It is, further, alleged that there is violation of the Rule 4(4) of the Adjudication Rules, 2000. The Adjudicating Authority was required to explain to the person or his legal practitioner or the Chartered Accountant about the contravention alleged to have been committed by such person indicating the provisions of the Act or of Rules, Regulations etc.. In the instant case, the respondent have adopted the procedure and despite the show-cause notice issued and received by the appellant to reply within 30 days, the appellant did not respond to the show-cause notice despite the fact that the show-cause notice was having details and nature of the contravention apart from the provisions of the Act of 1999 and the Regulations 2000. The appellant was directed to reply to the show-cause notice within 30 days but no reply to show- cause notice was given within 30 days and even subsequently till 30.01.2019, though reply should have been filed by 15.08.2018. Thus, the Adjudicating Authority issued notice for personal hearing when reply to show-cause notice was receive....
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.... violation of law and applicable policies but the concerned authorities have failed to take appropriate action...." 40. The Apex Court, however, relegated the matter to the Competent Authority but before that the issues requiring direction were framed. Para 53 of the aforesaid order is also quoted hereunder: "53. Accordingly, issue the following directions: (i) The Union of India may constitute a three member Committee of experts to look into the question whether and to what extent the statutory framework to enforce the letter and spirit of Sections 25 and 29 of the CA Act and the statutory Code of Conduct for the CAs requires revisit so as to appropriately discipline and regulate MAFs. The Committee may also consider the need for an appropriate legislation on the pattern of Sarbanes Oxley Act, 2002 and Dodd Frank Wall Street Reform and Consumer Protection Act, 2010 in US or any other appropriate mechanism for oversight of profession of the auditors. Question whether on account of conflict of interest or auditors with consultants, the auditors' profession may need an exclusive oversight body may be examined. The Committee may examine the Study Group and the Exp....
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....d cannot be governed by a general statement. We would accordingly proceed to deal with the factual issues involved in the matter vis-à-vis the legal provisions made applicable to it. 43. The main thrust of the argument of the appellant is that the receipt of the grants by a Company for commercial purpose is neither prohibited nor regulated under the FCRA. There is no prohibition for receipt of the grants by a private commercial organization. A reference to the argument has to be given because the appellants have made emphasis on the RBI's circular and specific statement that grants without capital assets do not violate the Act of 1999. The reference of RBI statement has been given in ignorance of the fact that what has been received by the appellant is grant or not is to be decided on the facts of the case . If it falls in the category of "grants", obvious consequence would be no contravention, however, if it does not fall in the category of "grants" consequence is the contravention of the Act of 1999 and the Regulations. The RBI's circular do not deny the respondent to make scrutiny as to whether the remittance is a grant or a CATs. 44. The Counsel for the appellant s....
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.... that it is part of the global professional network known as "PwC Network" a separate and distinct legal entities situated in over 150 countries. The network is a global whose members are given certain privileges such as the right to access resources of the global network on payment of fees, namely NSC, as long as they abide by certain rules of the club. For adherence to the quality standards of the club, it is to ensure a seamless experience for clients as required to execute three agreements. Emphasis remain to the purpose as to why the NSC was payable by the appellant which was nothing but the costs paid by the appellant to the PwC services for development and strengthening network through common standard, principles, tools & methodologies and common policies. It is alleged that the documents show no co-relation between the receipt of the grants and the payment of NSC under the FSA. It was submitted that NSC was paid even prior to the grant agreements and was not only after the grant agreement, thus, wrongly been co-related to grant agreement. To crystalize the issue, we need to submit the details of the GAs entered by the appellants which are as under: Grant Agreement Dat....
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....ransaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and include transactions referred to in sub-section(3) of section 6." 51. The provision quoted above makes it clear that capital account transaction would be where it alters the assets or liabilities including the contingent liabilities outside India of persons resident in India or assets or liabilities in India of persons outside India. In case of contingent liabilities, the transactions would fall in the definition of CATs. The transactions under GA-1 and GA-2 were having contingent liabilities in view of clause 2.2 of GA-1 which stipulated that that the appellant's failure to exercise the grant of US$ 7,000,000 on or before the expiry date of 04.05.2007 for the purpose specified would result in its cancellation and make the appellant liable to return the money. Similarly, clause 2.2 of GA-2 also provides the same condition and therefore we find that in reference to the clauses of those GAs, it was to fall in the definition of CATs. For ready reference, we may quo....
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.... cancelled and any amounts previously disbursed to PwC India under the Grant but not used for the acquisition of ESC be returned to PwC Services within 10 business days after the expiry of the Expiry Date. It is agreed and acknowledged between the Parties that PwC Services shall not be required to provide any notice or demand for the said cancellation and return of the Grant amounts. 2.3 ..... 52. Definition of 'capital' cannot be read contrary to the definition 'CAT' defined under Section 2(e) of the Act of 1999 quoted earlier. 53. The appellants have made much emphasis to stress upon that the transaction has not altered the assets or liabilities outside India of a person resident in India or assets or liabilities in India of a person resident outside India ignoring the fact that provision has to be read in totality. The condition of GA-1 and GA-2 having contingent liability to return the amount, if not utilized within the specified period would fall under the definition of the "CATs". It created liability on the appellant. 54. The transaction aforesaid was carried by the appellant without the approval of the RBI, thus, the respondent has taken it to be in contra....
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....g, to the EEFC Account, namely- (i) inward remittance through normal banking channel, other than the remittance received pursuant to any undertaking given to the Reserve Bank or which represents foreign currency loan raised or investment received from outside India by the account holder. 57. It is necessary to refer the Schedule appended therein was amended by the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2002, which reads as under: 4. Opening, holding and maintaining an Exchange Earner's Foreign Currency Account. A person resident in India may open, hold and maintain with an authorised dealer in India, a Foreign Currency Account to be known as Exchange Earner's Foreign Currency (EEFC) Account, subject to the terms and conditions of the Exchange Earners Foreign Currency Account Scheme specified in the Schedule-I Schedule (See Regulation 4) Exchange Earner Foreign Currency (EEFC) Account Scheme 1. Limit up to which foreign currency may be credited to EEFC account -- (1) A person resident in India may credit to the EEFC Account with an Authorised Dealer in I....
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....ay be credited to EEFC account- (1) A person resident in India may credit to the EEFC Account with an Authorised Dealer in India 100 per cent of the foreign exchange earnings as specified in Sub- paragraph (1A). (1A) Following foreign exchange earnings are specified for the purpose of sub-paragraph (1)- namely: (i) Inward remittance through normal banking channel, other than the remittance received pursuant to any undertaking given to the Reserve Bank of India or which represents foreign currency loan raised or investment received from outside India or those received for meeting specific obligations by the account holder. (ii) ................... 59. The Regulations, 2007 came in force w.e.f. 30.11.2006. In the case in hand credit to EEFC account were made post 30.11.2006. The Regulations, 2007 have been referred by the appellant to permit Indian resident to credit 100% of their earnings to EEFC account. The significance, to the word "earning" has been shown. The grants account of the appellant was not found "earning" so as to be credited in EEFC account, rather, the amount was received with the specific obligation, as admitted by the appellant. 60.....
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....he appellant, the inward remittance through banking channel was permissible for 100% credit to EEFC account other than the remittance received pursuant to any undertaking given to the Reserve Bank of India or which represents foreign currency loan raised or investment received from outside India and lastly applicable to those received for meeting specific obligations by the account holder. The receipt of the remittance to meet with the specific obligations was not permissible for credit to the extent 100% of foreign exchange earnings. Thus, even if we go on the argument of the appellant that the word 'earning' has not been properly taken by the Adjudicating Authority, the amount received by the appellant for meeting specific obligation of the account holder could not have been credited to the EEFC account. 64. The fact aforesaid is fortified from the statement of the bank officials. The specific reference of the statement of Mr. Praveen Mohan Dayal, Senior VP, HSBC Bank was given where he stated that grant not being earnings hence was not permissible for credit to EEFC account. The fact aforesaid was corroborated by the statement of Mr. Pappu Shastry, VP, Royal Bank of Scotland ....
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....e Apex Court. However, we find the penalty be excessive and disproportionate to the allegations against the appellant. The appellant has received grants under licence and accordingly inward remittance, though it is in contravention of the Act of 1999 and Regulations made therein. Taking overall view, we reduce the penalty from Rs. 230 Crores to Rs. 80.50 Crores on the appellant, M/s PricewaterhouseCoopers Pvt. Ltd.. The appellant Company has furnished a Bank Guarantee in the name of the Registrar of this Tribunal in pursuance to the order dated 20.01.2023 passed on the application for waiver of pre-deposit. The Bank Guarantee would be released so that the reduced amount of penalty is made good by the appellant company. 68. So far individual appellants are concerned, a separate appeal has been maintained and we have otherwise referred to penalty on each for contravention of the provisions of the Act of 1999 and Regulations 2000. 69. So far as appellant, Shri Deepak Kapoor is concerned, penalty of Rs. 23,00,000/- has been imposed for the contravention to the provision referred to above read with Section 42 of the Act of 1999. It is a fact that the appellant, Shri Deepak Kappor ....