TaxTMI 
TaxTMI 
2024 (9) TMI 1895
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the Ld. Adjudicating Authority. Facts in Brief 2. The appellants in these appeals are Mr. Sunil Chawla, his mother, Mrs. Bina Chawla and two private limited companies namely, M/s Prerak Investment Services Pvt. Ltd. & M/s Nita Infrastructure Ltd., in which they were directors at the relevant time. 3. A complaint was filed by M/s Khaitan & Jaykar, the solicitors for one Mr. Paul McGlade, an Irish national, indicating that Mr. Sunil Chawla and his mother Mrs. Bina Chawla had received foreign remittances in their companies' M/s Nita infrastructure Pvt. Ltd., and M/s Prerak Investment Services Pvt. Ltd. from the said Mr. Paul McGlade and his company M/s Infinity Financial Ltd., towards share application money. However, no shares were allotted to Mr. Paul McGlade or his company, M/s Infinity Financial Ltd., and Mr. Sunil Chawla and Mrs. Bina Chawla used the amounts for acquiring personal assets by investing in real estate. 4. It was mentioned in the letter that M/s Infinity Financial Ltd. had remitted Euro 9,24,963.50 (equivalent to Rs. 6,10,56,883.65) to the HSBC Bank account of M/s Nita Infrastructure Pvt. Ltd. towards share application money. However, out of total fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... three dates in Jan-Feb 2008. 9. Statements of Mr. Sunil Chawla and Mrs. Bina Chawla were recorded during the course of the investigations. Investigations revealed that the appellants had received foreign remittances from Mr. Paul McGlade and his company, M/s Infinity Financial Ltd. but did not file the requisite intimation to the RBI within 30 days from the date of inward remittances. Further, FCGPR form was also not filed with RBI. Also, no shares to Mr. Paul McGlade or M/s Infinity Financial Ltd. were issued, but the remittances received into the account of M/s Nita Infrastructure Pvt. Ltd. were utilized for purchase of various properties. 10. A compounding application, dated 14.05.2012, was filed with the RBI. However, the RBI, vide letter dated 22.08.2012, refused the consider the said application for compounding of contraventions relating to delay in reporting receipt of inward remittances and delay in filing for FC-GPR, as the matter was under investigation of the Directorate of Enforcement. 11. A complaint dated 09.09.2014 was filed by the Assistant Director, ED before the Ld. Additional Director for adjudication. The Additional Director, after taking cognizance of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....I for foreign remittances Euro 924963.50 equivalent to Rs. 6,10,56,883.65 (iii) Contravention of Section 6(3)(b) of FEMA 1999 read with Para 8 of Schedule 1 to regulation 5 of the Foreign Exchange Management (transfer or Issue of Security by a Person resident outside India) Regulation, 2000 by not refunding the foreign remittances Euro 924963.50 equivalent to Rs. 6,10,56,883.6 5to the foreign investors after expiry of 180 days from the date of receipt of the inward remittance. Mr. Sunil Chawla: Contravention of all aforesaid provisions of FEMA, 1999 read with relevant Regulations in terms of Section 42(1) of FEMA, 1999 as Director of Noticee No. 1. In consequence of the above findings, the Ld. Adjudicating authority has imposed the following penalties on the appellants herein: 1. Penalty of Rs. 25,00,000/- on M/s Prerak Investment Services Pvt. Ltd. (Noticee No.1) 2. Penalty of Rs. 15,00,000/- on Mr. Sunil Chawla (Noticee No.2) 3. Penalty of Rs. 25,00,000/- on M/s Nita Infrastructure Pvt. Ltd. 4. Penalty of Rs. 15,00,000/- on Mr. Sunil Chawla 13. The charges against Mrs. Bina Chawla (Noticee No. 3) were drop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Prerak Investment before the Company Law Board and courts. This led to inadvertent delay in complying with the necessary provisions of Foreign Exchange Management Act,1999. 20. An injunction order was thereafter passed by the Hon'ble Court. As a consequence of the same, no share transfer or issuance of any certificate could take place. 21. It is submitted that only thereafter that an FIR was registered on 28.06.2010 by Mr. Paul McGlade, on 15.04.2011. 22. Finally, to put an end to litigation, Consent Terms were signed between Paul McGlade and Sunil Chawla and his mother Bina Chawla. The said Consent Terms were filed before the Hon'ble Bombay High Court. 23. Important points of Consent Terms were as follows: 1. All the shares of M/s Nita Infrastructure Pvt. Ltd. would be allocated to M/s Infinity Financial Limited. 2. Sunil Chawla and his mother would resign as Directors of M/s Nita Infrastructure Pvt. Ltd. 3. All rights of the Alibag plot were given to M/s Nita Infrastructure Pvt. Ltd. 4. Paul McGlade relinquished his rights to any claims against M/s Prerak Investment Services Pvt. Ltd. 24. In pursuance of the Consent Terms, an a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowed and/or complied with and neither were the consultants of the appellant well informed of the same, leading to non-compliance of provisions of law. 30. It is also contended that the impugned order ought to have shown leniency upon the appellants, as there are several compliances and laws to be followed by a person engaging in business in India and non-compliance of one of them should have been seen with some leniency and no penalty should have been imposed. 31. It is also contended that the Ld. Additional Director erred in not appreciating that there were severe disputes between the parties concerned leading to non-compliance and mismanagement of the company and loss to the appellant's company and its Director, who ultimately had to close down his business in India. 32. It is also contended that the Ld. Additional Director ought to have appreciated that this investigation had been initiated on the basis of the complaint made by the foreign investor, Mr. Paul McGlade, and dispute between the Appellants and the Foreign Investor had been settled vide Consent Terms dated 15th April, 2011. Hence, the grievance of the investor had been resolved and, accordingly, the complain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entire property purchased using this money have been given to Nita Infrastructure Pvt. Ltd. as per consent terms. Prerak has not invested in real estate business. It is an allegation of the ED in para 5.5, page 23 of the impugned order that foreign funds were received by Prerak Investment Service Pvt. Ltd. and diverted to Mr. Sunil Chawla, who in turn purchased immovable property in individual name, but there is no bar on a resident Individual to purchase property or land in individual name. Further, at the relevant time, the shareholders of the company were Mr. Sunil Chawla and Mrs. Bina Chawla and there was no foreign shareholder and no investment in property was made by Prerak as stated under Para 5.4 of the impugned order. Therefore, there is no contravention of Section 6(3)(b) of FEMA,1999 read with item 20 of Annexure-B of para 2 to Schedule 1 to Regulation 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000. 40. It is also contended that, there was no mens rea in committing the alleged contraventions, but they were due to ignorance and oversight. Therefore, no offence is made out against the appellant. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ii) whether it is material and hence is required to be compounded for which the necessary compounding procedure has to be followed or (iii) whether the issues involved are sensitive/serious in nature and therefore needs to be referred to the Directorate of Enforcement." 44. It is further submitted that much more egregious cases of much higher value have been compounded by RBI for paltry compounding fee after noting that they amounted to technical oversight. Some illustrative cases are: (i) M/s Biosense Technologies Private Ltd. CA No. Mum 994/2019 (ii) UASC Services(India) Private Ltd. CA No. Mum 1003/2019 (iii) Bennet Coleman CA No. 5007/2019 45. Based on these contentions, the appellants have prayed that impugned order dated 28.09.2018 bearing Adjudication Order No. ADJ/12/ADE/SK/2018/FEMA/2406 be set aside and the penalty imposed on the appellant be cancelled and/or reduced. Contentions of Respondent 46. The respondent has strongly contested the arguments and contentions of the appellant and contended that the appellant, Sh. Sunil Chawla, had previously been residing in Spain, but he had returned to India in 2006 and had given up his NRI st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o mens rea. Ignorance of law is no excuse is the legal maxim. Therefore, the Appellant cannot escape the consequences of the contravention of Sec. 5(1)(a) merely on the ground that he was not aware of the statutory provisions. 50. Further, in this regard, reliance is also placed by the respondents on Venkat N.R. Akkineni Vs. Appellate Tribunal for Foreign Exchange, New Delhi and others [(2013) 4 ALD 529], wherein the Hon'ble High Court of Andhra Pradesh at Hyderabad has stated that: "39. Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361, regarding penalty for contravening provisions of SEBI Act,1992, the Supreme Court observes that the quantum of penalty is discretionary for the authority. The decision of Hindustan Steel Ltd.'s case (supra), was indeed considered by this decision but the Court held that to constitute the contravention of the provision obligating the party to penal consequences need not be coupled with mens rea. Obligation envisaged by Regulation 15(iii) of the Regulations,2000, as well as clause (6) of the Sanction Letter are mandatory. The failure to comply with them certainly attracts penal consequences under Section 13 of the FEMA..." 51. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the breach of the civil obligation by the offender. The word „penalty' by itself not be determinative to conclude the nature of proceedings being criminal or quasi-criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravener and the delinquency. (D) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. (E) There can be two distinct liabilities, civil and criminal, under the same Act." 52. It is contended the appellant cannot take the defence of pending litigation as even after the litigation had been settled vide Consent Terms. The appellant had taken no steps to comply with the consent terms as is evident from the investigation and the finding of the Adjudicating Authority. This absence of any corrective steps taken by the appellant also should disqualify him from being given any leniency in the quantum of penalty. It is further submitted that the penalty imposed by the Adjudicating Authority is only Rs. 25,00,000/- and that the AA under section 13, FEMA has the power to levy a penalty three times more th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re to be done within the prescribed time limit. Further, the appellant has not provided any documentary evidence showing the transfer of the rights of assets to the foreign investors. 56. On the issue that the litigation by the foreign investor was a means of pressurizing the appellant, it is submitted that this argument by the appellant is completely unsustainable as the foreign investor through litigation was just using the remedy that is available to him under law and is exercising his statutory right against the legal breach performed by the appellant and, therefore, it cannot be seen as a coercive tactic of the complainant. It is further submitted that the present contravention cannot be seen as a technical/minor contravention as it has elements of fraud and money laundering, further even after knowledge of the alleged contraventions, the appellant did not take any corrective measures against the contraventions committed by him. 57. It is further contended that the appellant has not provided any documentary evidence in the form of MOU, agreement, project reports, balance sheets, etc. to prove that they were in the business of hotels and hospitality. Analysis & Finding....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, had been running a successful business abroad, had no idea and was wholly unaware that receipt of large amounts of money by way of foreign remittances would necessarily entail certain legal/procedural compliances under the relevant laws in India. Furthermore, even if he was not personally aware of the specific compliances required, he would undoubtedly be aware that such requirements must exist. It was incumbent upon him to seek sound professional advice on the necessary compliances and fulfil the legal and procedural requirements when he was embarking upon a new business venture which involved acceptance of significant funding from abroad. 61. The respondents have further pointed out that the appellants made no efforts to comply with the requirements under the FEMA Rules and the RBI regulations which inter alia provide that shares are to be issued to foreign investors within a period of 180 days. The appellants did not even attempt to issue shares for over three years after the inward remittances had been received from the foreign investor and even after litigation in the matter had commenced. Moreover, we find that the appellants have reiterated time and again before the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... penalty for contravention of a statutory obligation ought not to ordinarily be imposed unless the accused/defendant acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of the obligation. The FAQs dated 16.01.2021 issued by the RBI are also relied upon which have been extracted in para above. 63. It is also contended that much more egregious cases of much higher value have been compounded by RBI for paltry compounding fees after noting that they amounted to technical oversight. Certain illustrative cases have also been cited which have been referred to in para- 44 of this order. 64. We have considered the above submissions of the appellants. We do not wish to enter into speculation whether the RBI would have compounded the contraventions or not since in fact, the RBI vide its letter, declined to consider the same and returned it to the appellants. It is the contention of the respondents that the RBI was well within its rights to refuse to compound the same. 65. As regards the issue whether the contravention was technical or not, we note that under the very scheme of FEMA, 1999 unlike the erstwhile FERA, 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the appellant and the investor and settlement of the same vide consent terms, and ought to have held that no penalty was leviable. The appellant had to close down all his business operations in India and go back overseas and did not earn any money out of the contravention or the business. In fact, the appellant has consented as per consent terms to transfer all the assets purchased using the funds received from the foreign investor and has accordingly transferred the rights to the foreign investor or its entity. Hence, the Applicant has not misappropriated any funds of the foreign investor. The complaint made by the foreign investor was only pressure tactics adopted to force a mutual settlement which eventually did happen vide consent terms and the foreign investor was to withdraw the complaint but by that time the complaint was in advanced stage and could not withdraw because of technical issues. 68. We have considered these submissions carefully. In our view the respondents have rightly pointed out that settlement of the dispute between the appellant and a third party does not take away or nullify the contraventions of FEMA, 1999, which the appellants are charged with. The a....