TaxTMI 
TaxTMI 
2026 (2) TMI 188
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.... Section 7(1) of FEMA read with Regulation 3 of the Foreign Exchange Management (Export of Goods and Services) Regulations 2000 to the extent of US $ 1,63,100 (Rs. 75,69,471/-). b. Rs. 78,60,000/- for the contravention of Regulation 14 C of Foreign Exchange Management (Export of Goods and Services) Regulations 2000 to the extent of US $ 57,11,045 (Rs. 26,21,36,965/-). The individual Appellant Shri Pentapati Lakshman Swamy, who was the Managing Director of the Company was penalized for the aforementioned contraventions in terms of Section 42(1) of FEMA. Correspondingly the penalty amounts imposed on him were Rs. 10,000/- and Rs. 2,00,000/- totaling Rs. 2,10,000/-. 2. This Tribunal vide Order dated 01.09.2023 had directed the Appellants to make pre-deposit of 10% (approximately) of the penalty amount viz Rs. 8,00,000/- by the Appellant Company and Rs. 20,000/- by the individual Appellant. The Tribunal has recorded on 08.05.2024 that the said pre-deposit Order has been complied with. 3. Briefly, the facts of the case are that SSPL entered into a Vessel Management Agreement with M/s Ocean Grace Co. Pte Ltd., Singapore on 16.05.2003, in terms of which M/s Ocean Grace w....
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.... O. 1155(E). 5. Ld. Counsel for the Appellants further contended that under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (EEZ Act), unless a notification is issued for a particular statute, the provisions of the statute cannot be extended for the EEZ. The EEZ is thus not considered as part of India for the purposes of that particular statute. There has been no Notification issued extending provisions of FEMA to the EEZ. Section 3(1) of the EEZ Act provides that the sovereignty of India extends and has always extended over the territorial waters of India. The limit of the territorial waters is the line of every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate baseline. Section 7(1) of the EEZ Act defines the EEZ as the area beyond and adjacent to the territorial waters. The limit of the EEZ is 200 nautical miles from the baseline. Certain sovereign rights and exclusive rights and jurisdiction are conferred without the rights of sovereignty over the waters in the EEZ. It will be deemed to be part of the territory of India only for the purposes of the enactment for which notif....
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............ 5.7 Once the contravention is compounded by the Reserve Bank of India, in terms of section 15(2) of FEMA, 1999 been compounded under sub-section (1) of section 15 of FEMA, 1999, no proceedings or further proceedings, as the case may be, shall be initiated or continued, as the case may be, against the person committing such contravention under that section, in respect of the contravention so compounded. Hence, I am left with no other option but to discharge Noticee 1 in respect of contravention of the provisions of Regulation 6 of Foreign Exchange Management (Borrowing or lending in Foreign Exchange) Regulations, 2000 by borrowing US$16,00,000 in the form of "Trade Credit" by importing four fishing trawlers without prior approval of Reserve Bank of India and without following guidelines prescribed in the Master Circular on External commercial Borrowings and Trade Credit procedure by drawing ECB loan by importing fishing trawlers. Once proceedings against Noticee 1 in respect of this particular contravention is discharged the question of casting vicarious liability on Noticee 2 (Individual Appellant) in his capacity as the Managing Director of Noticee 1 company also....
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....ed that the CA and FEMA are independent of each other. In this regard, Ld. Counsel cited the Judgments of the Hon'ble Supreme Court in the matters of M/s P. V. Mohammad Barmay Sons vs. Director of Enforcement [1993 Supp (2) Supreme Court Cases 724], Commissioner of Customs (Preventive), Mumbai vs. A. Ambalal and Company [(2011) 2 Supreme Court Cases 74] and Union of India and Others vs. S. Srinivasan [(2012) 7 Supreme Court Cases 683]. Ld. Counsel referred to Notification No. 450/60/92-Cus.IV dated 01.01.1993 issued by the Central Board of Excise & Customs, Government of India, whereby it has been stated that the normal procedure of shipping bills would not be applicable to the fish catches made by deep sea fishing vessels. The catches are exported directly from such vessels to the foreign ports, as the same are not covered under the export goods as defined under the CA. In view of this, Ld. Counsel argued that the provisions under Regulation 14 C of the Export Regulations are not applicable. The payment made by the Ocean Grace for the stores, baits and salaries cannot be regarded as retention of the export proceeds. Moreover, even if for the argument sake, it is taken that the ful....
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....627]. In any case, he argued that it should have been proportional to the contraventions which occurred without any intention. He cited the Judgment of the Hon'ble Supreme Court in the matter of Excel Crop Care Ltd. vs. Competition Commission of India and Other [(2017) 8 Supreme Court Cases 47]. Ld. Counsel argued that since the contraventions against the Appellant Company do not hold, those against the individual Appellant in terms of Section 42(1) of FEMA is also not established. Ld. Counsel prayed for allowing the Appeals. 10. Ld. Counsel for the Respondent Directorate submitted that the Impugned Order is well reasoned, as the findings have been made after the disposal of the defence plea taken by the Appellants herein. He pointed out that the charges for contravention of Section 8 of FEMA and of Section 6(3)(d) of FEMA read with Regulation 6 of Foreign Exchange Management (Export Goods and Services) Regulations, 2000 have been dropped. It is submitted that the Central Government vide Notification No. S.O. 1155 (E) dated 26.12.2000 under Section 16(1) of FEMA had authorized a class of officials of Central Excise and Customs and of Directorate of Revenue Intelligence to adjudi....
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....plication and commencement- (1) This Act may be called the Foreign Exchange Management Act, 1999. (2) It extends to the whole of India. (3) It shall also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India and also to any contravention thereunder committed outside India by any person to whom this Act applies. ............" Ld. Counsel further argued that both the parties SSPL and the Ocean Grace were bound by the Indian Law as is clearly brought out by the terms of the Agreements, including the Arbitration Clause given in the Loan Agreement and the Vessels Management Agreement. Ld. Counsel stated that the Judgment in the matter of Aban Loyd Chiles Offshore Ltd. (supra) was passed in relation to the dispute arising under the Customs Act, 1962. Ld. Counsel argued that in view of the aforementioned, the contention that the provisions of FEMA are not applicable to the facts of the present case cannot stand. He stated that both the parties having been bound by the Indian Law by virtue of their own agreements relating to loan and to vessels management, they cannot repudiate the agreed upon term....
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....y the lender is distinct from "export," FEMA definitions are clear. Section 2 of FEMA defines "export" as "taking out of India to a place outside India any goods," and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 broaden this to include any mode of transport, sale, lease, or arrangement by which goods leave the country. Further, the vessels were indeed taken out of India, despite being repossessed rather than voluntarily exported for sale, their removal still constitutes an export in terms of definition under FEMA. The FEMA mandates adherence to export documentation and reporting processes regardless of the reason for movement. The prior correspondence with RBI mentioning "cancellation of loan and return of vessels" neither overrides the requirements under FEMA, nor does it imply acceptance of non-compliance of export regulations by RBI. Therefore, by failing to file the necessary export declarations and documentation, the appellant contravened Section 7(1) of FEMA, and Regulation 3 of the Export Regulations. Ld. Counsel further argued that the letter of permit issued on 17.09.2004 by the Ministry of Agriculture to the Appellants to operate in th....
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.... an Authorized Dealer. Ld. Counsel quoted that the part of paragraph 5.14 in the Impugned Order, which is as follows: "The most interesting contradiction in the argument of the Noticees lies in the fact that they approached the Reserve Bank for compounding of contravention under Regulation 14C of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 for having adjusted its first instalment towards repayment of the borrowing to the extent of USD136,900 by netting off the export receivables against loan repayment on Compounding Authority held Noticee 1 of having contravened Regulation 14C of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and compounded the contraventions, including this for sum of Rs. 1,00,000/-, which the company accepted and paid the amount to Reserve Bank too. Compounding is a voluntary process in which person contravening any provisions of FEMA, 1999 punishable under section 13 of FEMA, 1999 applies to the compounding authority admitting to the contravention. In this case Noticee 1 applied for compounding of contraventions, including the one for contravention of Regulation 14C, and got the contraventio....
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....ementioned Regulation 14C, resulting in a violation amounting to US $ 57,11,045 (equivalent to Rs. 26,21,36,965/-). 14. Ld. Counsel for the Respondent Directorate submitted that the Appellants have been misrepresenting before the Tribunal. Even to avoid making pre-deposit of penalty amount they did not correctly represent their financial capability. Moreover, the Appellants cannot take ignorance of law as an excuse to escape the imposition of penalty. Ld. Counsel contended that the Judgment in the matter of Hindustan Steel Ltd. (supra) was passed in quasi criminal matter and the present Appeals relate to civil matter only. Ld. Counsel pleaded that the Impugned Order resulting in imposition of the penalties on the Appellants be upheld. Ld. Counsel therefore prayed for dismissing the Appeals. 15. We have in depth made due consideration of the submissions made by the Appellants and the Respondent Directorate, the Impugned Order, the pleadings in the Appeals, the Written Submissions, the Reply to the Appeals, the Judicial Pronouncements cited, the relevant provisions of FEMA and its Regulations, as well as, quoted Circulars. Accordingly, we frame the following issues which need t....
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....ty, if levied, it may direct the said person to furnish a bond or guarantee for such amount and subject to such conditions as it may deem fit. (2) The Central Government shall, while appointing the Adjudicating Authorities under sub-section (1), also specify in the order published in the Official Gazette, their respective jurisdictions." Reading of Section 16(1) & (2) of FEMA brings out clearly that the Central Government may appoint more than one officer as Adjudicating Authority to adjudicate contravention under Section 13 of FEMA. There is neither any restriction as to the number of such authorities nor a restraint as to the Department from which the Central Government may appoint such authorities as long as these authorities are officers of the Central Government. The Notification No. S.O. 1155 (E) dated 26.12.2000 has been issued under the same Section. In the said Notification while the officers of the Customs & Central Excise have been appointed to adjudicate contraventions of Section 6(3)(g) and Section 7(1) of FEMA, there is no restriction expressed in the Notification that these set of officers shall be the only set of officers, who can adjudicate the said con....
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....ve crores and not less than two crores. 7. Assistant Director of Enforcement Cases involved of amount not exceeding rupees two crore. We further find that the Department of Revenue, Ministry of Finance assigned Adjudicating Authorities for FEMA vide S.O. No. 2564(E) dated 30.09.2014, superseding earlier Notification No. S.O. 1248 (E) dated 30.05.2012. The officers of the Respondent Directorate including the Director, Special Director, Additional Director, Joint Director, Deputy Director, and Assistant Director of Enforcement Directorate were authorized to handle cases involving specific monetary limits ranging from amounts not exceeding one crore rupees to cases exceeding ten crore rupees. Even the GSR 535 (E) dated 01.06.2000 which brought FEMA into force on the same date defined specific classes of officers from the Enforcement Directorate with respect to the territorial jurisdiction. It is also noted that vide S.O. No. 2128 (E) dated 08.05.2023 which superseded the S.O. dated 27.09.2018, the jurisdiction in terms of the monetary limit was further enhanced for the class of officers in the Enforcement Directorate by hierarchy. We therefore find that the enablement Noti....
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....luding a foreign Government) shall, except under, and in accordance with, the terms of any agreement with the Central Government or of a licence or a letter of authority granted by the Central Government, explore or exploit any resources of the exclusive economic zone or carry out any search or excavation or conduct any research within the exclusive economic zone or drill therein or construct, maintain or operate any artificial island, off-shore terminal, installation or other structure or device therein for any purpose whatsoever: Provided that nothing in this sub- section shall apply in relation to fishing by a citizen of India. (6) The Central Government may, by notification in the Official Gazette,- (a) declare any area of the exclusive economic zone to be a designated area; or (b) make such provisions as it may deem necessary with respect to,- (i) the exploration, exploitation and protection of the resources of such designated area; or (ii) other activities for the economic exploitation and exploration of such designated area such as the production of energy from tides, winds and currents; or (iii) the safety and protection....
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.... xxxxx 30. As per Notification No. 11/87-customs dated 14-1-1987, the provisions of the Customs Act were extended to areas in the continental shelf and the exclusive economic zones of India. The text of the notification is as under: "GSR No. 30(E).-In exercise of powers conferred by clause (a) of sub-section (6) of Section 6, and clause (a) of sub-section (7) of Section 7 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976), the Central Government hereby extends the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975) to the designated areas in the continental shelf and the exclusive economic zone of India as declared by the notification of the Government of India in the Ministry of External Affairs, No. S.O. 429(E) dated 18-7-1986, with effect from 15th day of January, 1987." xxxxx 32. The fourth Notification No. S.O. 189(E) was issued on 11- 2-2002, after the filing of the writ petition in the High Court but before rendering of the judgment. The same reads as under: "S.O. 189(E).-In exercise of the powers conferred by clause (a) of sub-section (5) of S....
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....ct as if the continental shelf or the exclusive economic zone to which the enactment has been extended is a part of the territory of India. Thus, sub-section (6) of Section 6 and sub-section (7) of Section 7 create a fiction by which the continental shelf and the exclusive economic zone are deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by issuing a notification. xxxxx 75. In exercise of the powers vested in the Central Government under sub-section (6) of Section 6 and sub- section (7) of Section 7 of the Maritime Zones Act, 1976, the Government extended the Customs Act, 1962 and the Customs Tariff Act, 1976 to the designated areas of the continental shelf and the exclusive economic zone by notification published in the Official Gazette referred to and reproduced in paras 29 to 32. xxxxx 98. As stated above, the area of exclusive economic zone/continental shelf, where the oil rigs are stationed (which of course is outside territorial waters) is deemed to be a part of the territory of India under the Central Government notifications issued pursuant to the provisions of the Maritime ....
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....62 the Indian Customs Water means water extending into the sea up to the limit of EEZ under Section 7 of the EEZ, Act. While as per Section 2(27) of the Customs Act, 1962, India includes the Territorial Waters of India, the aforementioned provisions relating to the EEZ does not lend sovereignty in territorial sense of dominium over the EEZ, but provides sovereign rights for the purpose of exploring and exploiting the natural resources in the EEZ. India has jurisdiction to enforce its physical, revenue and penal law by intercepting vessels engaged in suspected smuggling and the other illegal activities attributable to a violation of the above laws or the existing laws. 21. We observe that the Sub-Section (7) of Section 7 of the EEZ Act uses the word 'may' for issuing the Notification in the Official Gazette to extend any enactment or part thereof for application to the EEZ. In view of the extension of the provisions of the Customs Act, 1962 to the EEZ and the applicability of the said Act to the activities in the EEZ, there is no dispute that import and export of vessels which operate in the EEZ and catching of fisheries in the EEZ for the purpose of selling it to persons abroad ....
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.... Bills of Entries Nos. 060633-36 dated 01.08.2003 were filed by the Appellants to import the four vessels in accordance with the provisions of the Customs Act, 1962. It is also to be noted that Section 1(3) of FEMA lends extra territoriality beyond India to the application of the provisions of FEMA. By this Sub-Section the provisions of FEMA apply to all branches, offices and agencies outside India owned or controlled by person resident in India, as well as to contraventions committed outside India by any persons to whom FEMA applies. There is no dispute as to the status of the Appellants being persons resident in India. After having accepted and taken actions in accordance with the provisions of the Customs Act, 1962 for their activities for exploitation of fisheries in the EEZ, the Appellants cannot repudiate those very provisions because of inability to carry out such activities. For all the aforementioned reasons, we cannot, but observe that in the facts and the circumstances of the present case, the Notification stipulating extension of FEMA to the EEZ is not necessary to invoke contravention of FEMA against the Appellants. 23. The doctrine of lex non cogit ad impossibilia ....
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....nd forthwith be due and payable, without protest, presentment, notice or dishonor, demand or further notice of any kind, all of which or expressly waived by the Borrower. xxxxx 10.4 The order and manner in which the Lender's rights and remedies are to be exercised shall be determined by the Lender at its sole discretion, and all payments received by the Lender shall be applied firstly to the costs and expenses of the Lender, secondly to the payment of all unpaid principal amounts." Clause 11.4 brings out the 'Deletion of Vessel' which is as follows: "The Borrower shall fully and expeditiously assist in the procedures relating to the deletion and export of the Vessel including all port clearances." It is therefore clear that even under the Agreement the lender could not have forced the Appellants to surrender the vessels without meeting all the port clearances. Further the Appellants have failed to produce any document to show that the surrender of vessels was the only option left for meeting the costs and expenses of the Lender. Even Clause 10.2 as mentioned afore brings out the waiver required expressly from the borrower i.e. the Appellants. We also ....
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....) of FEMA, 1999 read with Regulation 3 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 by exporting four fishing trawlers on 09.03.2009 valued at US$ 1,63,100 equivalent to Rs. 75,69,471/- were made by Noticee 1 company (Appellant Company). while sending out the four vessels outside India. There is no dispute that the four vessels are now in the possession of a foreign entity. I, therefore, have no hesitation in arriving at the conclusion that Noticee 1 has contravened the provisions of section 7(1) of FEMA, 1999 read with Regulation 3 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 to the extent of US$1,63,100 (equivalent to Rs. 75,69,471/-) and thus hold them guilty of the contravention as alleged in the show cause notice. Noticee 2 being the Managing Director of Noticee 1 Company is an undisputed fact. I find that all the contracts relating to the business of Noticee 1 Company were executed by him. All the correspondences relating to Noticee 1 that were relied upon for the issue of the show cause notice were found signed by Noticee 2. In his statement dated 19/03/2012 given before the Assistant Director of Enforceme....
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....g prior approval of the Reserve Bank for adjustment of value of goods imported into India against the value of goods exported from India, as required under Regulation 14C of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. If Noticee 1 wanted to take prior permission under Regulation 14C, he ought to have applied specifically for the same. Mere allotment of Loan Registration Number by Reserve Bank does not tantamount to grant of permission by RBI under Regulation 14C. If a particular method or procedure is prescribed in a Regulation, the same has to be done in the manner prescribed. Loss of foreign exchange or no loss of foreign exchange will not be a factor to decide as to whether contravention of a particular provision under FEMA, 1999 has occurred. When Noticee 1 is and exporting fish catch from within the Exclusive Economic Zone of India, they accept it as "export" within the meaning of FEMA, 1999 and receive certain payments against the "exports" through their authorized dealer. But when diesel, fish bait, other services etc., were being provided in the mid-sea by the overseas buyer Noticee 1 argues that it does not amount to "import" as defined in....
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....er book, we find that while the exporter of the fishes was the Appellant Company, the consignee was Ocean Grace, the buyer was TOEI REEFER LINE, Tokyo, Japan. The terms of delivery and payments were F.O.B. These invoices were signed for the Appellant Company by the Managing Director. However, the port of loading and the place of receipt was shown as on High Seas. It is established that the Appellant Company was the exporter of the fishes which were caught in the EEZ, over which the sovereign rights of India cannot be questioned in view of the aforementioned Notifications issued for extension of the Customs Act, 1962 to the EEZ. It is also evident that the delivery of these fish consignment were being made to a buyer in Japan. Even though the consignment of fishes were transferred in the High Seas through M/s Ocean Grace which acted as the intermediary in between, the application of the Customs Act, 1962 for such consignment is beyond pale of doubt. It cannot be denied that the said consignments had bearing on foreign exchange transactions and therefore the provisions of FEMA and of Regulation thereunder had to be complied with. The said modus adopted by the Appellants makes it glar....
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....of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not." 29. The Judgment (supra) in the matter of SEBI cited the Judgment in Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors. [MANU/SC/0300/1996] wherein even for FERA 1947 it was held that the contravention shall be breach of a civil obligation which would attract penalty irrespective of the fact whether the contravention was made with any guilty intention or not. The Judgment (supra) in the matter of SEBI, also cited a number of previous Judgments wherein it was held that mens rea is not an essential element for imposing penalty for breach of civil obligations. The Judgment (supra) has clarified that the case of Hindustan Steel Ltd. Vs. State of Orissa [1969 (2) Supreme Court Cases 627] pertained to criminal/quasi criminal proceeding as the provisions of the Act under consideration in that case imposed a punishment of imprisonment and fine as well. The present appeal deals w....