TaxTMI 
TaxTMI 
2026 (8) TMI 164
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....isc. MP-FE-810/CHN/2020 Stay FPA-FE-97/CHN/2020, MP-FE-812/CHN/2020 Misc. MP-FE-813/CHN/2020 Stay FPA-FE-98/CHN/2020, MP-FE-815/CHN/2020 Misc. MP-FE-816/CHN/2020 Stay FPA-FE-99/CHN/2020, MP-FE-818/CHN/2020 Misc. MP-FE-819/CHN/2020 Stay FPA-FE-100/CHN/2020, MP-FE-150/CHN/2024 A.D. MP-FE-822/CHN/2020 Misc. MP-FE-823/CHN/2020 Stay FPA-FE-102/CHN/2020, MP-FE-825/CHN/2020 Misc. MP-FE-826/CHN/2020 Stay FPA-FE-103/CHN/2020, MP-FE-830/CHN/2020 Misc. MP-FE-831/CHN/2020 Stay FPA-FE-106/CHN/2020, MP-FE-199/CHN/2025 Substitution MP-FE-839/CHN/2020 Stay MP-FE-838/CHN/2020 Misc. FPA-FE-112/CHN/2020, MP-FE-76/CHN/2026 A.D. MP-FE-261/CHN/2025 A.D. MP-FE-84/CHN/2021 Stay FPA-FE-39/CHN/2021, MP-FE-262/CHN/2025 A.D. MP-FE-86/CHN/2021 Stay FPA-FE-40/CHN/2021, MP-FE-77/CHN/2026 A.D. MP-FE-263/CHN/2025 A.D. MP-FE-88/CHN/2021 Stay FPA-FE-41/CHN/2021, MP-FE-78/CHN/2026 A.D. MP-FE-264/CHN/2025 A.D. MP-FE-90/CHN/2021 Stay FPA-FE-42/CHN/2021, MP-FE-79/CHN/2026 A.D. MP-FE-265/CHN/2025 A.D. MP-FE-92/CHN/2021 Stay FPA-FE-43/CHN/2021, MP-FE-80/CHN/2026 A.D. MP-FE-266/CHN/2025 A.D. MP-FE-94/CHN/2021 Stay FPA-FE-44/CHN/2021, MP-FE-81/CHN/2026 A.D. MP-FE-267/CHN/2025 A.D. MP-FE-96....
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....2022 Tamilnad Mercantile Bank Ltd. 1 11,33,21,688/- Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 113,32,16,884/- 5,66,60,844/- Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 160,71,41,094/- FPA-FE-92/CHN /2020 Shri M. G. M. Maran @ Nesamanima ran (Chairman of TMBL) 2 1,00,00,000/- Section 6(3)(b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42(2) of FEMA 113,32,16,884/- 35,00,00,000/- Section 4 & 8 of FEMA, Regulation 3 & 4 of FEM (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of FEM (Foreign Currency Accounts by a person resident in India) Regulation 2000 28,08,50,000/- FPA-FE-39/CHN /2021 Shri G. Narayana Moorthy (Managing Director & CEO of TMBL) 3 50,00,000/- Section 6(3)(b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms o....
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....nsfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42(2) of FEMA 113,32,16,884/- FPA-FE-40/CHN /2021 Shri K. K. Sharma (Company Secretary of TMBL) 14 10,00,000/- Section 6(3)(b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42(2) of FEMA 113,32,16,884/- FPA-FE-48/CHN /2021 Shri B. Prabaharan (Chairman of TMBL) 15 50,00,000/- Section 6(3)(b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42(2) of FEMA 160,71,41,094/- FPA-FE-45/CHN /2021 Shri A. K. Jagannathan (MD & CEO of TMBL) 16 50,00,000/- Section 6(3)(b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42(1) of FEMA 90,31,41,094/- FPA-FE-42/CHN /2021 Shri S. Sundar (Director of TMBL) 18 10,00,000/- Section 6(3)(b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of ....
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..... The aforementioned RBI letter pointed out that the actual flow of funds for transfer of shares of Tamilnad Mercantile Bank Ltd. (TMBL) from Sterling Group of Companies to various individuals/entities need to be investigated. For the said purpose RBI also forwarded a copy of Amended and Re-stated Escrow and Transaction Settlement Agreement dated 12.05.2007 entered into among certain entities in relation to transfer of TMBL shares and copies of certain other correspondence. Consequent to such investigation the Respondent Directorate issued the Show Cause Notice (SCN) on 17.12.2014 to 26 Noticees, of whom 23 have filed Appeals as mentioned afore. The SCN was issued on the basis of the Complaint which was filed on 16.12.2014 under Section 16(3) of Foreign Exchange Management Act, 1999 (FEMA). The Impugned Order has disposed of the SCN in terms of passing an Order relating to four set of issues. The first set of issues arise from transfer of 46,862 shares of TMBL to seven foreign investors without prior approval of RBI for a total consideration of Rs. 113,32,16,884/-. Such transfer of shares has been penalized for contravention of Section 6(3)(b) of FEMA read with Regulation 4 of the ....
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....Standard Chartered Bank, Mauritius granted a loan of US$ 35.4 Million to three foreign entities viz., M/s GHI I Ltd., M/s Katra Holdings Limited, Mauritius, and M/s RST Limited and a further loan of US$ 20 Million to M/s. Katra Holdings Limited, Mauritius, thus totaling to US$ 55.4 Million, equivalent to Rs. 221,00,00,000/- (approximately), without any special permission from the RBI. The third set of issues have been penalized for the contraventions of Section 6(3)(f) of FEMA read with Regulation 3 of the FEM (Deposit) Regulations, 2000 and contraventions of Section 6(3)(j) of FEMA read with Regulation 3 of the FEM (Guarantees) Regulations, 2000. While the Appeal filed by the Standard Chartered Bank challenges the findings made in the Impugned Order against it on this third set of issues, the Appeal filed by the Appellant labelled as Noticee No. 26 challenges the findings against the Noticee, who has been penalized for the aforementioned contraventions in terms of Section 42 of FEMA. The fourth and last set of issues has arisen from the fact that Shri M. G. M. Maran, the then Chairman and Director of TMBL, a person resident in India, without the permission of Reserve Bank of India....
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....ety in respect of any debt, obligation or other liability incurred, - i. by a person resident in India and owned to a person resident outside India; or ii. by a person resident outside India Regulation 4 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, reads as under: 4. Restriction on an Indian entity to issue security to a person resident outside India or to record a transfer of security from or to such person in its books: - Save as otherwise provided in the Act or Rules or Regulations made thereunder, an Indian entity shall not issue any security to a person resident outside India or shall not record in its books any transfer of security from or to such person. Provided that the Reserve Bank may, on an application made to it and for sufficient reasons, permit an entity to issue any security to a person resident outside India or to record in its books transfer of security from or to such person, subject to such conditions as may be considered necessary. Regulation 3 of the Foreign Exchange Management (Deposit) Regulations, 2000, restricts deposits between....
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....s otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India. Section 8 of FEMA, reads as under: Realisation and repatriation of foreign exchange:-Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realize and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank. Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 reads as under: Duty of Persons to realize foreign exchange due: A person resident in India to whom any foreign exchange is due or has accrued shall, save as otherwise provided under the provisions of the Act, or the rules and regulations made thereunder, or with the general or special permission of the Reserve Bank, take all reasonable steps to realize and repatriate to India such foreign exchange, and shall in no case do or refrain from ....
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....rred to as "Essar Group") for transfer of a total of 1,91,455 shares representing 67% of the paid-up capital of the Appellant. The Board of Directors refused consent to the transfer in a meeting dated 06.02.1995. Aggrieved, the transferees approached the Company Law Board (hereinafter referred to as "CLB"), seeking recognition of the transfer. In its order dated 04.05.1996, CLB directed the Appellant herein to register these Companies as Shareholders subject to acknowledgement by the RBI. The said transfer was not recorded in the books of the Appellant since RBI, on or about 14.10.1996 refused to acknowledge the said transfer in terms of the applicable guidelines citing close ties between the acquiring entities and a large industrial house. Ld. Counsel further submitted that in a timespan commencing from around December 1996 and culminating in 1998, certain other companies/ individuals representing an entity known as the Sterling Group acquired 6 of the 7 transferee companies of the Essar group with a view to gain control of the TMBL shares held by them. The remaining seventh entity, M/s Essar Investments sold the shares of Appellant Bank held by it to the Sterling Group. 5. Ld.....
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....pounded by RBI under the rules and regulations and guidelines issued from time to time. 6. Ld. Counsel further stated that the RBI, assented to the proposal put forth by the erstwhile Directors of the Appellant Bank, qua the "FEMA angle", vide a letter dated 30.03.2007. The aforesaid letter of the RBI dated 30.03.2007 accorded sanction to the proposed sale of 53,611 shares of Rs. 10/- each in the Appellant Bank to certain Non-Resident Investors and Foreign Investors (FIs) at Rs. 24,182 per share. In a meeting convened on 13.05.2007, the Board of Appellant Bank deliberated the recording of transfer of the residual 95,418 shares including the transfer of 46,862 shares (16.47%) to seven individuals/ entities residing out of India and remaining shares (17.06%) to various resident investors. It has to be mentioned that 46,862 shares were recorded in the name of entities that were not overtly accorded sanction by the RBI. However, the afore-referenced entities were wholly owned by the very same persons in whose regard, the Apex Bank had granted no-objection letter dated 30.03.2007 pursuant to applications forwarded to RBI by the prospective buyers. The Board thereafter, accorded sanct....
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....an order dated 14.10.2010 directed RBI to take appropriate decision in connection with the acknowledgment of holding of shares by the 18 entities identified by it as a group. In an order dated 31.03.2011, the Ld. Deputy Governor declined to acknowledge the holding of 5% or more of the paid-up capital of the Appellant by the group of 18 entities (including the 7 non-resident entities), in terms of the RBI guidelines dated February 3, 2004 which lays down the criteria for 'fit & proper' status of acquirers of shares of banks. The Deputy Governor directed that the aggregate holding of the 18 entities be brought below 5% of the paid-up capital of the Appellant Bank. However, nowhere in the order RBI had stated that the 7 foreign entities cannot hold the shares in their names. On the contrary, it had only directed that the total holding of the group of 18 persons named therein which includes the 7 foreign entities to be brought below 5%. In other words, the 7 entities alleged to have violated FEMA can continue to hold shares in each of their names. 9. Ld. Counsel for the Appellant TMBL submitted that in pursuance of the Order dated 31.03.2011 of the Deputy Governor, three ent....
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....sion in Foreign Exchange Department of RBI for regularization of the share transfer. Later, the Foreign Investment Division wrote back to the Appellant stating that the application for regularization shall be kept in abeyance till the investigation by the Enforcement Directorate is completed. It may also be noted that the Appellant had subsequently filed two more applications for compounding of contraventions vide letters dated 29.08.2016 and 22.03.2017 which were also rejected citing the same abovementioned reasons. Upon receipt of the Impugned Order, the Appellant filed a compounding application before the RBI vide letter dated 12.10.2020. RBI, vide letter dated 27.01.2021, communicated to the Appellant that said Application cannot be considered as adjudication proceedings are concluded and the Impugned Order is passed. 11. Ld. Counsel for the Appellant TMBL challenged the Impugned Order on the grounds that the Show Cause Notice (SCN) issued on 17.12.2014 was with a delay of seven and a half years of the recording of the share transfer on 13.05.2007. Ld. Counsel stated that the delay has been attributed in the Impugned Order to complex nature of investigation and the necessity....
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....proceedings non-est and unsustainable. The proceedings initiated pursuant to the Show Cause Notice are undoubtedly unreasonable and draconian in nature inasmuch as these result in imposition of penalty which has serious civil consequences. Therefore, it was incumbent on the Ld. AA to conduct the same with promptitude and alacrity. Not having done so, the entire proceedings culminating in the Impugned Order are unsustainable and requires to be set aside at the hands of this respected Appellate Tribunal. Ld. Counsel for the Appellant Shri M. G. M. Maran further submitted that it is obvious and apparent that the Complaint made by the Assistant Director of Enforcement, Bangalore is dated 16.12.2014. The Complaint was accompanied by documents of voluminous nature in more than three volumes running to thousands of pages. This Complaint was placed before the Ld. AA on 17.12.2014, who had taken cognizance of the same on the very same date, and issued the SCN on the same day as can be seen from the records. Therefore, it is the contention of the Appellant that the Ld. AA did not apply its judicial mind to the Complaint before signing on the SCN and issuing the same. 13. Ld. Counsel for t....
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....s per approval dated 13.5.2007 states that the acquisition of shares will be made directly or through wholly owned subsidiaries and therefore in the absence of rejection at that point by RBI, the Appellant and the others charged had genuine and reasonable belief that the same was in compliance with Regulation 4. In such view of the matter, the Appellant submits that the findings recorded against the Appellant qua the first charge is unsustainable and requires to be set aside. The Appellant submits that the Company Secretary /Managing Director of TMBL had taken a decision to transfer the shares in the name of wholly owned subsidiaries instead of individual names which can at best be termed as a technical violation as the ownership continued to vest with the same persons to whom the shares had been transferred but in a slightly altered capacity. Inasmuch as the Appellant's interaction with TMBL as only a part-time non-executive Chairman and limited to attending to Board meetings and he not being in charge or responsible for the conduct of the business of TMBL, cannot ipso facto make him liable for any alleged contravention of the FEMA or Regulations made thereunder invoking the p....
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....rized copy of Employment Pass and copy of one page of the Passport bearing no F7265582. The next document is the Tax Return of Employees Remuneration for the year ended 31st December 2006 in which date of commencement of employment is mentioned as 5th October 2006 and also the Tax Assessment order issued by Comptroller of Income Tax, Singapore showing the Tax to be paid as S.$ 315 to be paid before 30.07.2007. The third document produced shows that M/s Magnum Global Pte. Ltd. was incorporated in Singapore on 23.02.2006. Fourth document is Tax Return of Employees Remuneration for the year ended 31.12.2007 showing the designation of Noticee No. 2 as Managing Director of Magnum Global Pte. Ltd. Assessment order dated 07.07.2008 of Comptroller of Income Tax, Singapore also was attached. Ld. AA has stated that the documents produced by Noticee No. 2 are in compliance with the provisions of Section 39 of FEMA, 1999, and has admitted them as evidence. Therefore, the Ld. AA should have halted his inquiry at that point and come to the conclusion that the Appellant is indeed a non-resident Indian. However, to the dismay of the Appellant the Ld. AA has travelled further and has rendered findi....
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.... 16. Ld. Counsel for the Appellants Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan submitted that penalty of Rs. 5,00,000/- on each the said Appellants has been imposed in the Impugned Order in spite of bringing to the notice of the Ld. AA that these Noticees (Appellants herein) were Non-Executive Independent Directors. In fact, Shri S. T. Kannan was the RBI Nominee Director. Ld. Counsel for the Appellants submitted that it has been alleged that a total of 46,862 equity shares of TMBL valued at Rs. 113,32,16,884/- were transferred from certain resident shareholders to certain foreign investors on 13.05.2007 in a manner contrary to law. It is pertinent to mention that the RBI vide its letter dated 30.03.2017, granted approval for transfer of shares of TMBL to certain persons resident outside India. Ld. Counsel for the Appellants submitted that on 13.05.2007 a Board meeting was conducted in which the Board of Directors of TMBL approved the shares transfers on the basis of a Board Note that was presented to the Directors. The Board Note and the....
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....ellants were the Directors on Board of the TMBL at the relevant point of time. Ld. Counsel for the Appellants submitted that it is evident from the relied upon documents supplied before the Ld. AA that the details of the registration of transfer of shares was communicated by the TMBL to the Chief General Manager, Department of Banking Operations & Development, RBI immediately after the transfer, by a letter dated 15.05.2007. 18. Ld. Counsel for the Appellants Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan submitted that Section 42 of FEMA is a special provision in case of contraventions by Companies. As per Section 42(1) if there is a contravention by a Company, then, every person who was in charge of and was responsible to, the Company for the conduct of the business of the Company as well as the Company, shall be deemed to be guilty of the contravention. As per Section 42 (2) if there has been a contravention by a Company and if it has been proved that the contravention has taken place with the consent or connivance of, or is attributabl....
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....Section 10A of the Banking Regulation Act, for any violation alleged to have been committed by the Bank. Ld. Counsel therefore pleaded to allow the Appeals filed by Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan. 19. Ld. Counsel for the Appellant Shri K K Sharma submitted that the Appellant was under bone fide belief that the recording of transfer of 46,862 shares valued at Rs. 113,32,16,884/- was in order. Since, the entities in whose name the transfer of shares were made, were wholly owned by the individuals, the Appellant was under the bona fide belief that the recording of transfer of shares in the name of the entities was in order. It is to be appreciated that the shares were transferred to the aforesaid persons although not directly but through their wholly owned entities. Ld. Counsel emphasized that the Appellant did not give any recommendation and approval in his capacity as Company Secretary. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty....
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....nt would also be in consonance with the RBI Order. Ld. Counsel submitted that the Appellant does not have a legal background and therefore assented to the recording of the shares for the second transfer based on the aforementioned legal opinion. Therefore, it is further submitted that the Appellant did not act negligently and was under bona-fide belief that the transfer of shares was in compliance with rules, regulations, directions of FEMA. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 160,71,41,094/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Ld. Counsel pleaded that penalty amount is unreasonable. Ld. Counsel therefore pleaded to allow the Appeal filed by Shri B Prabaharan. 21. Ld. Counsel for the Appellant Shri A K Jagannathan, then Managing Director and CEO of TMBL, submitted that the Appellant with strong banking background, had joined TMBL on 23.09....
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....of the underlying value of shares amounting to Rs. 90,31,41,094/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Ld. Counsel pleaded that penalty amount is unreasonable. Ld. Counsel contended that Appellant had abstained from the meeting held on 26.12.2011 for recording transfer of 13,029 shares from M/s Katra Holdings Ltd. and RST Ltd. to M/s Sub-Continental Equities Ltd. Moreover, he had already left the TMBL before the next meeting held on 11.06.2012. No consideration in the imposition of penalty has been made. Ld. Counsel therefore pleaded to allow the Appeal filed by Shri A K Jagannathan. 22. Ld. Counsel for the Appellants Shri S. Sundar (Director of TMBL), Shri P. Yesuthasen (Director of TMBL), Shri A. Shidabaranathan (Director of TMBL), Shri K. N. Rajan (RBI Nominee and Director of TMBL) and Shri K V Rajan, (RBI Nominee and Director of TMBL) contended that all of them had joined TMBL after the approval of transfer of 46,862 shares on 13.05.2007. The Appellants were only associated with approving the recording of subsequent t....
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....nt of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 70,40,00,000/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Ld. Counsel pleaded that penalty amount is unreasonable. Ld. Counsel therefore pleaded to allow the Appeal filed by Shri Deepak C S. 24. Ld. Counsel for the Appellant Standard Chartered Bank (SCB) submitted that the Foreign Exchange Department of the RBI had issued a no objection certificate for the transaction on 30.03.2007. In order to complete the transaction, what was required to be done by SCB Mauritius was to set up an escrow arrangement in which monies would be deposited by the buyers, shares would be deposited by the sellers, and then the money would be released upon the transfer of the shares. Since the monies were payable to sellers in India and the shares were in India, SCB Mauritius used the facility of its Indian associate, the Appellant, as a sub-agent, to physically open an accoun....
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....y taken as alleged in these respects, even then, the neither the Guarantee Regulations were attracted nor RBI approval was required. The Ld. Adjudicating Authority erred in holding that certain shares of TMBL that were deposited with the Appellant, constituted collateral/ guarantee for the loans advanced by SCB, Mauritius to M/s GHI I Ltd. and M/s RST Ltd. The Ld. Adjudicating Authority ought to have appreciated that the banking finance letters dated 09.05.2007 contained no such provision for any collateral/guarantee/ security. The Ld. Adjudicating Authority erred in placing reliance on irrelevant and unrelated language in para 3.1(b)(i) of the said banking facility letters, under the heading of Customer Representations and Warranties and Covenants, to arrive at its finding in this regard. Para 3.1(b)(i) of the banking facility letters stated that the borrower shall not, pending the full repayment of the respective facilities, enter into a scheme of amalgamation, merger, expansion, compromise or reconstruction or sell, lease, transfer (grant any option to do the same) all or substantial portion of its fixed assets and other assets without prior written notice to SCB Mauritius. The ....
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....hich the SCN was issued, was lodged as far back as 16.12.2014 and cognizance taken of it by issuance of the SCN dated 17.12.2014, the first notice for hearing in the matter was issued almost 5 years after the issuance of the SCN, i.e., on 02.08.2019. The Ld. Adjudicating Authority ought to have appreciated that the periodic recording of the reasons for delay, though mandatory, was not complied with. Further, the Ld. Adjudicating Authority has disregarded this submission and summarily brushed aside the same without any rationale in the Impugned Order. The Ld. Adjudicating Authority erred in purporting to justify the delay by holding that subsequent to the issuance of the SCN, further investigations were allegedly carried out, which resulted in the issuance of the Second Show Cause Notice on 09.11.2017. The Ld. Adjudicating Authority ought to have appreciated that the said purported justification was specious, because no new facts were disclosed in the Second SCN against the Appellant, and the delay was therefore ex-facie unwarranted. The Ld. Adjudicating Authority failed to appreciate that the issuance of the SCN was vitiated by non-application of mind, since the SCN was issued only....
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.... the said shares of TMBL. The Ld. AA ought to have appreciated that although Katra defaulted on the said loan, SCB Mauritius did not ever liquidate the shares of TMBL held in the Share Account for the recovery of its loan. The Ld. AA failed to appreciate that the treatment of the TMBL shares in the Banking Finance Letter dated 29.12.2006 was in contrast with the treatment, in the same banking finance letter, of the shares of one Scandent Holding Mauritius Limited ("Scandent"), which in fact were pledged by a non-resident (Katra) to another non-resident (SCB Mauritius) for a loan taken by Katra from SCB Mauritius. The Ld. AA ought to have appreciated that the Letter specifies the "Pledge over of 28.7% of shares of Scandent Holding Mauritius Ltd (SHML) held by Ramesh Vangal and Katra Finance Ltd (Mauritius) together in Scandent Holding Mauritius Ltd.". The absence of the word "pledge" in relation to the shares of TMBL, as compared to the shares of Scandent, clearly established that only the shares of Scandent and not the shares of TMBL were pledged as a security for the loan advanced by SCB Mauritius to Katra. The Ld. Adjudicating Authority ought to have appreciated that no agreement....
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....as an "Escrow Account", should be construed as a current account, which can be opened by "any person resident outside India", and for the opening and operation of which no prior permission of the RBI is required. The Ld. AA failed to appreciate that an escrow arrangement necessarily contemplates a tripartite agreement between a promisor, a promisee and a third party called an escrow agent. Such a third party is not an 'agent' stricto sensu as neither the promisor nor the promisee is his principal. The third party "escrow agent" will hold certain property, documents or money pending fulfilment of certain conditions agreed between the promisor and the promisee. The escrow agent is required to independently satisfy itself as to whether or not the said conditions are fulfilled. Upon the fulfilment of such conditions as per the terms of the escrow arrangement, to the independent satisfaction of the escrow agent, the escrow agent will hand over the property, documents or money, entrusted to the escrow agent by the promisor, to the promisee. Where the conditions are not fulfilled, to the independent satisfaction of the escrow agent, the escrow agent would return the property, docu....
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....TMBL Shares, to confirm the sale of the shares to the foreign investors whose names were approved by RBI. The Ld. AA ought to have appreciated that the Appellant wrote to TMBL as a custodian for the FIs and SCB Mauritius wrote to the transferors in its capacity as an escrow agent. The Ld. AA ought to have consequently appreciated the two different roles played by the Appellant and SCB Mauritius. Even if the Ld. AA found contraventions these were merely technical violations of FEMA or the Regulations framed thereunder, and hence, it should have either desisted from imposing any penalty or in the alternative, levied only a nominal penalty, given the venial nature of the alleged contraventions. The Ld. AA has imposed penalties constituting a maximum of 8% and a minimum of less than 1% of the amount involved in the alleged contraventions, on TMBL and its directors. In comparison, the penalty levied on the Appellant for allegedly contravening Section 6(3)(b) of FEMA read with Regulation 3 of the Deposit Regulations, and Section 6(3)(f) of FEMA read with Regulation 3 of the Guarantee Regulations, is 30% of the amounts allegedly involved in the alleged contraventions. No reasoning or just....
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....oning or execution of loans and/or loan documentation, and/ or the opening and operation of the India Accounts. No separate allegation has been made in the SCN against the Appellant in his own right, or under Section 42(2) of FEMA, nor has it been alleged that the Appellant acted outside his authority or without exercising due diligence. In fact, the record bears out that the Appellant had, in fact, exercised due diligence to the extent required by him in his limited role at SCB, which, as explained below, was only acting as the sub-agent of the escrow agent, SCB, Mauritius. Therefore, the alleged contraventions and the Impugned Order as against SCB (and consequently the Appellant) is untenable and bad in law. Erroneous findings on alleged contravention of the Guarantee Regulations and of the Deposit Regulations have been made. The Ld. AA erred in concluding that the INR Account and the Share Account are "Escrow" accounts. The Ld. AA misinterpreted RBI/2006-2007/413 A.P. (DIR Series) Circular No. 62 dated 24.05.2007 (RBI Circular); Notification No. FEMA 162/2007-RB dated September 18, 2007 (RBI Notification). No case has been made out for proceeding against and/or holding the Appel....
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....ugned Order has clearly brought out that further transfer of the shares, which in first place were wrongly registered by the Appellant TMBL, could not have been further transferred in accordance with law. Ld. Counsel therefore pleaded to dismiss the Appeal filed by TMBL. 34. Ld. Counsel for the Respondent Directorate contested the contention of almost all the Appellants that there was inordinate delay in the initiation of the adjudication proceedings. Ld. Counsel stated that first and foremost, the investigation was initiated at the instance of RBI vide its letter dated 16.03.2011 to the Respondent Directorate. On initiation of the investigations, directive was issued to the Appellant TMBL on 21.09.2011 and it was revealed that a number of entities were involved in the contravention of FEMA. Moreover, the contraventions in themselves involved a large number of issues, which related to transfer of 46,862 shares of TMBL to non-residents on 13.05.2007, without the required permission/approval of the RBI. The investigation also revealed further contraventions of the provisions of FEMA in the subsequent transfers made out of these shares in December, 2011 and June, 2012. It therefore....
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....personal hearings to the Noticees from 28.08.2019 which continued till 12.12.2019. Ld. Counsel denied non-adherence to the provisions of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. Ld. Counsel stated that the allegation against the Ld. AA of having not explained to the Appellant or its representatives the contravention alleged to have been committed is baseless, which is obvious from the fact that besides the preliminary submissions made by the Appellants, further opportunities were also granted for the hearings. Ld. Counsel asserted that the Judgment cited by the Ld. AA passed by the Hon'ble Madras High Court shall be applicable to the present case, in view of the matter having arisen in the jurisdiction of Tamil Nadu. Ld. Counsel contended that compliance to the Judgment of the Hon'ble Supreme Court in the matter of Kanwar Natwar Singh was thus met with. The Impugned Order was therefore judiciously passed on 14.08.2020. Ld. Counsel asserted that given the complexities of the issues involved, entailing in depth examination and comprehensive dealing with the issues, the Impugned Order which comprised of 179 pages was issued on 14.08.2020. Ld. ....
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....mro Bank N.V. Singapore Branch, Singapore and receiving the said amount of USS 68,50,000/ on 18.05.2007, as evidenced by the telefax Advice dated 18.05.2007 from LGT Bank in Liechtenstein AG, Herrengasse 12, FL-9490, Vaduz, Furstentum, Liechtenstein as per the order of Katra Holdings Ltd., Mauritius, the Appellant has also contravened Regulation 3 of the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulation, 2000. It is important to mention that the aforementioned provisions apply to a person resident in India. The impugned transaction took place on 18.05.2007. The Appellant has fallaciously submitted that he was not a person resident in India during the Financial Year 2006-07 for the purposes of Section 2(v)(1) (A) of FEMA. Since the transaction in question took place on 18.05.2007, it is imperative to prove that the Appellant was a resident in India in the FY 2006-07. It is submitted that the Appellant had only travelled abroad for a finite period, and did not exhibit his intention to stay outside India for an uncertain period, despite having set up a Company in Singapore and having paid taxes for the income generated through it. The App....
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....sed objections for recording the transfer of the shares in names of the entities, which were not found mentioned in the RBI letter dated 30.03.2007. But they failed to exercise due diligence required in this matter. All the Independent Directors including the Appellants and RBI nominee Directors, who were expected to act as watchdogs failed in their duty. Ld. Counsel for the Respondent submitted that as per stipulations of RBI, the Independent / Non-Executive Directors have a prominent role in inducing and sustaining a pro-active governance framework in banks. Private sector banks were required to ensure that the Directors on their Boards representing specific sectors as provided under Section 10A of Banking Regulation Act, are indeed representatives of those sectors in a demonstrable fashion, they fulfill the criteria under corporate governance norms provided by the Ganguly Committee and they also fulfill the criteria applicable for determining 'fit and proper' status of Important Shareholders (i.e., shareholding of 5 per cent and above) as laid down in RBI Circular dated 25.06.2004. They are appointed after following 'fit and proper' criteria prescribed by the RBI....
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....te on a resolution without conducting due diligence, only to later claim exemption from responsibility in the event of a contravention arising from that resolution. Accountability is essential in maintaining the integrity of the Board decision-making process. Further, it is respectfully submitted that the Appellant should be held accountable for violating FEMA. The Appellant does not have to oversee the operations of TMBL Bank. However, by endorsing the aforementioned board resolution, his actions could be interpreted as consent or neglect. Ld. Counsel further submitted that the case of M/s Jaipur IPL Cricket Pvt. Ltd. vs. The Special Director, Directorate of Enforcement, Mumbai in FPA-FE-9/MUM/2013 concerns an issuance of shares where due to technical reasons necessary approvals could not be obtained for the issue. The Ld. AA issued Show Cause Notices to the Directors which were then challenged. One of the Appellants, argued that he was merely a minority shareholder and one amongst nine other Directors of the entity. Therefore, he was not in overall control of the entity's operations and hence ought not to be held liable. However, the court disagreed with the contention and st....
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....gister the transfer of shares in the name of M/s. Sub-Continental Equities Limited, Mauritius, was passed by a majority vote of the Board. It is pertinent to note here that S/Shri S. C. Sekar, S. R. Aravind Kumar, and P. Mahendravel raised a valid dissent concerning the fundamental issue that the original entities holding the shares were in violation of FEMA. Ld. Counsel contended that this was not just a minor oversight, but warranted immediate referral to the RBI for further investigation. 39. Ld. Counsel for the Respondent Directorate further submitted that meanwhile, Noticee No. 16, Shri A K Jagannathan then Managing Director and CEO, chose to remain silent, which was deeply concerning. This reluctance to share any perspective undermined the accountability expected from someone in his position. Moreover, it is unacceptable that he simply deferred to the Board decision without offering his guidance to ensure legal compliance. The only way he could have avoided vicarious liability was by unequivocally demonstrating that he had no knowledge of the contravention or that he exercised all due diligence to prevent it. His inaction raises serious questions about his commitment to up....
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.... had been granted to M/s. GHI I Limited to acquire shares in TMBL. It is important to note that the authorization was exclusively granted to Shri Rajat Gupta in his individual capacity, therefore, the transfer of shares to M/s. GHI Limited was deemed void ab initio, as it contravened Indian law. Furthermore, given that the transaction was under investigation by the Enforcement Directorate, it was imperative that their permission be secured. The other Directors voted in favor of the resolution, neglecting to consider that the transferor entity lacked the requisite approval from the RBI under the provisions of FEMA, to possess those shares initially. It is crucial to emphasize the Board Note dated 08.06.2012 regarding "Agenda 5" bears the signature of Noticee No. 24 i.e. Shri Deepak C S. Significantly, this registration is recorded in the official documents of TMBL under the name of M/s. GHI I Ltd., a subsidiary wholly owned by Shri Rajat Gupta. However, the approval by RBI for the share transfer was distinctly granted for a transaction initiated by the sale under the name of Shri Rajat Gupta alone and not in favor of M/s. GHI I Ltd. Moreover, transferring shares from these entities ....
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....erefore pleaded to dismiss the Appeals filed by Shri B Prabaharan, Shri A K Jagannathan, Shri S Sundar, Shri P Yesuthasen, Shri A Shidabaranathan, Shri K N Rajan, Shri K V Rajan and Shri Deepak C S. 43. Ld. Counsel for the Respondent Directorate submitted that the challenge by the Appellants SCB and its Official Shri Ranjan Ghosh are misplaced and misconceived. The Impugned Order has clearly stated that the investigation in the matter was of complex nature which involved time consuming efforts for collection of documentary evidence. The Adjudication proceedings involved multiple Noticees, voluminous documents and complex cross border transactions spanning multiple jurisdictions. The Appellants themselves sought and granted multiple frequent adjournments. Hence, the arguments of the Appellants that contrary to Section 16(6) of FEMA, the period in passing the Impugned Order was long and delayed cannot stand. In fact, the timeline if evaluated under these circumstances, clearly reflects that a well-reasoned Order was passed within reasonable period of time. 44. Ld. Counsel for the Respondent submitted that the case of the Appellant relating to the Deposit Regulations rests on th....
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....ents of the Appellant proceeds from a narrow contractual analysis. However, the Ld. Adjudicating Authority correctly found that the arrangement as a whole, the custody of title deeds over 62 acres of Bangalore land, the holding of blank share transfer deeds representing 40% of the paid-up capital of TMBL, and the Non-Disposal Undertaking, constituted a security arrangement for the benefit of SCB Mauritius in respect of the loans advanced. The commercial and legal substance of this arrangement was that SCB India held assets which could be enforced (through the Power of Attorney) in the event of default which had the effect of guaranteeing the loans, regardless of the label attached. The finance letters dated December 29, 2006, and March 30, 2007, with KHL included security provisions as "covenants" and "conditions precedents" as found by the Ld. AA. The overall transaction structure including the TMBL shares held in the Share Account and the Non-Disposal Undertaking provided implicit security for the entire loan facility. The Appellant characterised the Non-Disposal Undertaking as a general negative covenant in the banking facility letters (para 3.1(b)(i) of the facility letters dat....
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....ital (c) and Clause 4.4.1. SCB India's role in the transaction structure is explicitly contemplated and incorporated in the Escrow Agreement. It was not merely incidentally involved as an uninformed banking correspondent. 47. Ld. Counsel for the Respondent Directorate contended that the Appellant SCB India's senior management, including Shri Ranjan Ghosh, were involved in discussions about the transaction from its earliest stages. SCB India's letter to TMBL dated May 12, 2007, requesting registration of shares in the name of the respective investors demonstrates that SCB India was a proactive participant in the transaction, exercising its own judgment and acting on behalf of the buying entities, rather than merely a passive conduit following ministerial instructions. The contraventions were serious, involved a major scheduled bank acting as Authorised Dealer in a complex structured transaction involving hundreds of crores of rupees in share consideration and tens of millions of US dollars in loan financing, all deliberately structured to circumvent RBI permission requirements. The scale and sophistication of the arrangement justifies the significant penalty imposed. ....
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....ri Ranjan Ghosh, as head of the FIG Division cannot escape the responsibility as the Division was directly responsible for originating and executing the impugned transaction. Shri Jayakar was a direct participant in the impugned transaction as an SCB employee. His statement, given under Section 37 of FEMA, is admissible as evidence. Shri Jayakar's statement is corroborated by the email chain and the documented involvement of Shri Ranjan Ghosh in the transaction. The Appellant's characterization of this as uncorroborated third-party testimony is factually incorrect. The Appellant himself concedes that he "never retracted from his statement before the Respondent." The Appellant's own recorded statement, in which he acknowledged the security arrangements, his knowledge of the transaction structure, SCB Mauritius's instructions and the knowledge that the practice of creating such security arrangements without approval is illegal forcing SCB India to change its illegal stance later, stands as a valid admission. The Appellant contended that the FIG Division was responsible only for marketing, credit underwriting, and client relationship management and had no role in opera....
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..... C. The third set of issues has arisen from opening an Escrow Account in the name of "SCB Project Windmill (Sale Consideration) Escrow Account and another Escrow Account in the name of "SCB Project Windmill (Shares) Escrow Account on 12.05.2007 in SCB, Mumbai. Further allowing deposit in the said Escrow account totaling Rs. 113,32,16,884/- from 7 foreign entities, towards transfer of shares of M/s Tamilnad Mercantile Bank, which were not permitted for transfer by the Reserve Bank, and keeping 1,12,151 shares of M/s Tamilnad Mercantile Bank in the "SCB Project Windmill (Shares) Escrow account", without any permission of the RBI add to this set of issues. The third set of issues also relate to taking into custody title deeds of over 62 acres of land owned by Shri Ramesh Vangal (Director of M/s. Katra Holding Pvt. Ltd.) and M/s. Arudrama Developments Pvt. Ltd. (a company in which Shri Ramesh Vanagal was one of the Directors) and taking custody of TMBL shares as collateral/ guarantee, in lieu of which Standard Chartered Bank, Mauritius granted a loan of US$ 35.4 Million to three foreign entities viz., M/s GHI I Ltd., M/s Katra Holdings Limited, Mauritius, and M/s RST Limited ....
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....n the contraventions to the Noticees, alleged to have been committed. Finally, the Appellants have alleged that the provisions of Section 16 (6) of FEMA were not adhered as the Complaint was not disposed of within one year of its filing. 51. We find that in the Impugned Order most of the preliminary issues have been dealt with. The Appellant TMBL has cited the Judgment in the matter of Government of India vs. Citadel Fine Pharmaceuticals [1989 (3) SCC 483]. Ld. AA has made the following observations in Paragraph 6.9 of the Impugned Order: "Even in the case of Government of India Vs. Citadel Fine Pharmaceuticals Madras & others etc., the Hon'ble Apex Court observed that "In the absence of any period of limitation it is settled that every authority is to exercise the power within a reasonable period. What would be reasonable period, would depend upon the facts of each case. Whenever a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case notice ....
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.... Disciplinary Authority would take a stand that those Authorities should also record their reasons for forming an opinion and communicate the same." In another decision dated 25/08/2014 rendered in the case of "Ramakrishna Setty Vs. The Special Director" in W.P. No. 20592 of 2014, also and the Hon'ble Court observed as under: "9. A careful look at the provisions of sub-rules (1) to (12) of Rule 4 would show that the enquiry by the respondent, comprises of five stages, which are as follows: - 1. The issue of show cause notice of a duration of not less than ten days, calling upon the person to show cause as to why an enquiry should not be held, for any contravention. 2. The issue of a notice fixing the date for the appearance of the person, if after considering the cause shown by the person to the show cause notice, the adjudicating authority is of the opinion that an enquiry should be held. 3. The explanation by the adjudicating authority in person, either to the noticee or to his authorised representative, the contravention committed by the noticee with reference to the provisions of the Act or the Rules or the Regulations. ....
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....ions against various entities premised on different facts and on different grounds. However, in the span of just one day the Ld. Adjudicating Authority issued the show cause notice based on the complaint that prima facie case has been made out against the Noticees. The haste in which the complaint was processed and the first show cause notice issued suggests a total non-application of mind and the show cause notice is liable to be withdrawn on this ground alone. I am of the view that the fact of complaint under Section 16 (3) of FEMA, 1999 dated 16.12.2014 having been before the Adjudicating Authority and the show cause notice having been issued on the very next of 17.12.2014, after considering the facts contained in the complaint and having perused voluminous documents that are relied upon in the complaint is not an impossibility. It was possible for the Adjudicating Authority to have devoted his entire energy and concentration on the complaint that was filed before him on 16.12.2004 and issued show cause notice even on the late night of 17.12.2014. The same cannot be termed as non-application of mind merely because the show cause notice was issued on the very next day of filing c....
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.... cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period. This clearly indicate the legislative intention in accommodating element of delay that is bound to happen in such proceedings. It cannot be argued that merely because the adjudication proceedings had not been completed within a period of one year, the show cause notice is bad in law. In this case show cause notice and relied upon documents were furnished to both Noticee No. 25 and Noticee No. 26. Their replies were considered by the Adjudicating Authority before affording them opportunities of personal hearing. Their pleadings, oral and in writing, were duly considered. Merely on account of delay, it cannot be argued that prejudice had been caused to the Noticees. Even after issue of show cause notice bearing number T-4/10/BGZO/SRO/2014 dated 17.12.2014, investigations in the case continued, which culminated in the issue of another show cause notice bearing number T-4/15/CEZO-I/SRO/2017 dated 09.11.2017 to Noticee No.1 and others. It is for this reason inquiry proceedings as contemplated under Rule 4 of....
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....g Authority could not have had capacity to appreciate the voluminous documents of the Complaint is conjectural and hypothetical. We cannot but agree with the Ld. Counsel for the Respondent that the inherent capacity of the Adjudicating Authority, who have had necessary experience cannot be questioned without any basis. Perusal of the Impugned Order clearly brings out that a number of opportunities were granted to 26 Noticees to the SCN for filing acknowledgments, interim replies, final replies and additional replies to the contraventions alleged in the SCN and the issues involved in such alleged contraventions. We also note that the copies of the Complaint and the relied upon documents were also furnished to the Noticees. It is therefore difficult to sustain the objection about non-adherence to the provisions of Rules 4(3) and 4(4) of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000. An Appellant has pleaded that the challenge to the Judgment relating to SV Manohar (Supra) has failed before the Hon'ble Supreme Court of India is countered by the fact that similar challenge to the Judgment of the Hon'ble High Court of Madras in the case of "Ramamohan R....
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....ar from the date of receipt of the complaint: Provided that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period." The perusal of the Section shows that the provisions thereof exhort the Adjudicating Authority to expeditiously dispose of the Complaint and endeavour shall be made to do so within one year of the receipt of the Complaint. The proviso to the Section itself admits the possibility of disposal of the Complaint after one year. We note that the first acknowledgment to the SCN was filed on 24.12.2014 followed by interim replies and replies thereafter. The last of which was dated 01.12.2015. Many of these replies filed by 26 Noticees had voluminous documents to support the respective arguments. We further find that the Adjudicating Authority conducted a number of hearings beginning from 28.08.2019 and ending on 12.12.2019. Most of the Noticees were given more than one opportunity for personal hearing. Ld. AA has also observed that the investigations were continuing which culminated into the issuing of another SCN bearin....
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....993 SCC (L&S) 1184 : (1993) 25 ATC 704] should govern all cases where the complaint is not that there was no hearing (no notice, no opportunity and no hearing) but one of not affording a proper hearing (i.e., adequate or a full hearing) or of violation of a procedural rule or requirement governing the enquiry; the complaint should be examined on the touchstone of prejudice as aforesaid. xxxxx 33.......(3) In the case of violation of a procedural provision, the position is this: procedural provisions are generally meant for affording a reasonable and adequate opportunity to the delinquent officer/ employee. They are, generally speaking, conceived in his interest. Violation of any and every procedural provision cannot be said to automatically vitiate the enquiry held or order passed. Except cases falling under - "no notice", "no opportunity" and "no hearing" categories, the complaint of violation of procedural provision should be examined from the point of view of prejudice, viz., whether such violation has prejudiced the delinquent officer/employee in defending himself properly and effectively. If it is found that he has been so prejudiced, appropriate orders have to be ....
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....thstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purposes of this section- (i) "company" means anybody corporate and includes a firm or other association of individuals; and (ii) "director", in relation to a firm, means a partner in the firm." On reading of the Section, it is obvious that where a Company including its forms as mentioned in the Explanation to the Section, has committed a contravention then those who are responsible for running the Company, as well as those who have consented, connived or neglected shall be held liable to be proceeded against. The vicarious liability is provided for in this Section fo....
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....al period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation, or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation." The provisions of Section 47 of FEMA empower the RBI to make Regulations. Again, it is Section 6 (3) of FEMA under which the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, the Foreign Exchange Management (Deposit) Regulations, 2000, and the Foreign Exchange Management (Guarantees) Regulations, 2000 were issued by RBI. It was vide the Notification No. FEMA 20/2000-RB, dated 03.05.2000 [GSR 406(E), dated 03.05.2000] that RBI in exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 ....
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....rein). While Shri M G M Maran has been made liable for penalty under Section 13 of FEMA by virtue of Section 42 (2), Shri G. Narayana Moorthy has been made liable for penalty by virtue of Section 42 (1) of FEMA. We also note that in the Impugned Order with respect to the first and the second set of issues, Ld. AA has invoked Section 42(1) of FEMA against only two individual Appellants namely Shri G. Narayana Moorthy and Shri A K Jagannathan. Both were the Managing Director and CEO of TMBL at the relevant points of time. The rest of the individual Appellants in these two sets of issues have been found vicariously liable for the contravention in terms of Section 42 (2) of FEMA. In the matter relating to the third set of issues the individual Appellant has been found vicariously liable for the contraventions in terms of Section 42 (1) of FEMA. Consideration of First and Second Set of Issues 56. The first set of issues has arisen because the Board of TMBL approved the transfer and recording of 46,862 shares in the name of the entities which were not mentioned in the letter dated 30.03.2007 issued by the RBI in response to the applications forwarded to it. The Appellant has argued....
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....roviso to the Regulation allows for such transfer and recording, only on being permitted by the RBI. For the purpose an application has to be moved to the RBI. While the application was moved and the permission was granted on 30.03.2007 by the RBI, we observe that the recording of transfer of 46,862 shares to entities other than those mentioned in the said letter of the RBI by the Board of TMBL is undisputed fact. 57. Ld. Counsel for the Appellant TMBL has attempted to justify the transfer of shares to the other entities by pointing out that such transfer came to the notice of the Hon'ble Bombay High Court twice which in turn caused consequent issuance of directions by the RBI. The issue which was looked at and for which directions were given related to bringing down the shareholding of an individual and connected parties to less than 5% of the paid-up capital of the TMBL. In the Writ Petition No. 2684 of 2008 filed before the Hon'ble High Court of Bombay by one Shri C. Kanakaraj challenging the aforementioned transfer of shares had resulted in Order dated 08.04.2009 of the Hon'ble High Court directing the petitioner to make a representation to the RBI which was required to be d....
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....s have also not been forthcoming in declaring details in respect of their transactions and made inconsistent statements to RBI regarding the source of funds and purchase of shares making it difficult to establish the source of funds for the transfer of shares. Further, holding of shares by certain persons for further distribution to others, receipt of foreign inward remittances from third parties towards transfer of TMBL shares even in 2008 i.e. after the original transfers in May 2007 and transfer of such funds to an associate of another investor in the group, disputes relating to share transfers in spite of receiving consideration and yet not availing legal remedy to resolve the disputes and complaints and allegations of lodging of shares of a resident by a foreign investor before transfers have been effected by the bank, acquisition of shares by an associate of a foreign investor that is a shareholder as per the books of the bank, indicate that the matter is indeed very complex and that the investors have non-transparent dealings and agreements / understanding. The existence of allegations and counter allegations relating to subsequent transfer of shares and the transac....
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.... of shares from M/s RST Ltd. and M/s Katra Holdings Ltd. to M/s Sub-Continental Equities Ltd. on 26.12.2011. The Appellant Bank TMBL further approved the recording for the transfer of shares from M/s GHI I Ltd. to M/s Robert and Ardis James Company Ltd. on 11.06.2012. The Appellant Bank TMBL has contended that the Regulation does not prohibit transfer of shares of an Indian entity between the residents outside India. It has also been claimed that to meet compliance to the Order dated 31.03.2011 of the Deputy Governor for reducing the shareholding for the entity as a Group to below 5% of the paid-up capital, it was imperative to divest the shareholding from the original foreign based entities to other foreign based entities. It has also been argued that the initial transfer was valid till the passing of the Impugned Order on 14.08.2020. Ld. Counsel contended that the applicability of the Master Circular No. 15/2011-12 dated 01.07.2011 on foreign investment was erroneously ruled out in the Impugned Order. 59. The general permission which is available to a person resident outside India to transfer shares held by it to any person resident outside India is by virtue of Regulation 9 o....
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....Ltd., M/s Katra Holdings Ltd. and M/s GHI I Ltd. held the shares which had been transferred to them despite there being no approval for them to do so by the RBI, the holding of such shares were in contravention of Regulation 4 of the Regulations 2000 (supra). Since, the initial holding was void ab initio the subsequent holding of such shares with the transfree resident outside India was also in contravention of FEMA provisions. We cannot accept the plea of the Appellant that the holding of such shares became vitiated only after passing of the Impugned Order on 14.08.2020. The transfer of the shares had occurred on 13.05.2007 on the basis of the approval granted by the Board of Directors of TMBL, which was not in consonance with the approval granted by the RBI vide its letter dated 30.03.2007. Hence, the transfer was vitiated right from 13.05.2007 and the Impugned Order dated 14.08.2020 merely confirmed through an adjudication process the contravention of the FEMA provisions in this regard. We have already cited the Order dated 31.03.2011 of the Deputy Governor of RBI wherein it has been categorically mentioned that the investors including the aforementioned three, had failed to sat....
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....es, Commodity Exchanges, etc.) under private arrangement to a person resident outside India, subject to the pricing, reporting and other guidelines given in Annex 3. However, this general permission is not available in case of transfer of shares/debentures by gift from a Resident to a Non-Resident/Non-Resident Indian. ..................... 8.B. II Prior permission of the Reserve Bank in certain cases for acquisition / transfer of security (i) The following instances of transfer of shares or convertible debentures from residents to non-residents by way of sale requires Reserve Bank approval: a) Transfer of shares or convertible debentures of an Indian company engaged in financial services sector (i.e. Banks, NBFCs, ARCS, CICS, Insurance, Infrastructure companies in the securities market such as, Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.). " We observe that the RBI Master Circular No. 15/2011-12 dated 01.07.2011 reads in consonance with the provisions of FEMA and the Regulation 2000 (supra). The permission required from the RBI for transfer of shares of the Appellant Bank TMBL to the residents outside In....
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....ved to be transferred or recorded to certain persons residents outside India, without having been so permitted by the RBI. We do not agree that Appellant Bank TMBL is not liable for any penalty, in view of the offence on their part being technical in nature and the Judgment in the matter of Hindustan Steel Ltd. (supra). In this regard, the provisions of Section 13 (1) of FEMA are reproduced below: "If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues." Thus, there is nothing in the Section which can indicate directly or indirectly requirement of mens rea. Words like "willful", "delibe....
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....nk had approved the transfer of shares to the entities in contravention of Regulation 4 of the Regulations 2000 (supra) read with Section 6 (3)(b) of FEMA. The arguments of the Appellant with regard to inordinate delay, issuance of SCN on the next date of filing of the Complaint and investigation being lopsided have already been disposed of in Paragraph 52 of this Order. The Appellant has pleaded that he was part time Non-Executive Chairman and had taken over only a few days before the impugned transactions. Moreover, the decision of the Board of TMBL was a recommendation and therefore the contravention if any was technical in nature. We have already held that the Appellant Bank TMBL had contravened the Regulation and the FEMA. We have also rejected the plea that the contravention was technical in nature and hence no penalty is imposable. With regard to plea of the Appellant that he was part time Non-Executive Chairman. In this regard, we note the following findings made by the Ld. AA in Paragraph 6.16 of the Impugned Order: "As already observed, I notice from the annexure 1 to the letter dated 04/12/2006 of Noticee No. 2 and (late) B. Ramachandra Adityan written to RBI, t....
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....ppellant argued that Section 42 of FEMA is not applicable to the contravention of Regulations. We note the following findings in Paragraph 6.18 of the Impugned Order: "6.18.........It is seen from Board Note dated 13.05.2007 prepared for the Board Meeting held on 13.05.2007 to consider the registration of transfer of 95,418 shares (33.53%) of the Bank sold by certain individuals in the year 1994 the registration of which remain pending (which included the proposal to consider registration of 46,862 shares in the names of seven non-resident entities), which has been furnished as Annexure 5 to the reply dated 05.05.2015 of Noticee No. 1. I find the Board Note to be signed by Noticee No. 14 in his capacity as Company Secretary and countersigned by Noticee No.3 in his capacity as Managing Director & CEO of Noticee No. 1 bank and the note was placed before the Board......... .........Having stated so, I find that at paragraph 15 (page 5) names of entities other than the ones approved by RBI vide letter dated 30.03.2007 is found mentioned. This indicates that Company Secretary i.e. Noticee No. 14 and Managing Director viz. Noticee No. 3 did not present the factual posit....
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....cordance with the provisions of the Regulations 2000 (supra). His other arguments regarding the contravention not being quantifiable and penalty being disproportionate have already been dealt with in Paragraphs 52 and 60 of this Order. We concur with the conclusion of the Ld. AA that the Appellant was liable for penalty for the aforementioned contraventions in terms of Section 42 (1) of FEMA. 63. Ld. Counsel for the Appellants Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan has pleaded that they were not liable for any penalty being Non-Executive independent Directors. Moreover, Shri S T Kannan was the RBI Nominee Director. Since they were appointed under the provisions of Section 10A of the Banking Regulation Act, 1949, the Appellants have argued that their presence in the Board was to enable the Bank to benefit from their expertise and they had no role to play in the business of the Bank. Besides raising certain other issues relating to preliminary objection like inordinate delay which we have already dealt with in Paragraph 52 of this Or....
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....ng A.G- Switzerland through its wholly owned subsidiary company M/s. Swiss Re Investors (Mauritius) Limited, which names were not the approved ones by the RBI in their letter dated 30/03/2007, cannot be denied. Their respective belief that the transfer was being effected as per RBI approval is found wrong on the facts. Independent directors were not expected to act as rubber stamp for any proposal put up by the Board, without proper scrutiny of the proposal and related documents........... ..........Here on the facts of this case and also in the submissions of Noticee No. 4 to Noticee No. 11, I do not find that they had discharged the burden that they had not consented to the resolution or that they were not negligent in their duties. Merely pointing fingers at Managing Director and Company Secretary is not sufficient enough defence to escape from the consequences of the act of Noticee No. 4 to Noticee No. 11 in voting for the resolution. Noticee No. 4 to Noticee No.11 cannot argue that they would attend a Board meeting, vote for a resolution without proper due diligence, but if a contravention occurs out of passing of the resolution, they should not be responsible for the....
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....ng provisions of the Act under which the Regulations were issued by the Reserve Bank of India in the first place. Under the provisions of Section 42 (2) of FEMA, 1999, even if a director is not in-charge of and was not responsible to the conduct of the company, then also such person can be deemed to be guilty of the contravention committed by the company, if it is proved that the contravention had taken place with the consent or connivance of or is attributable to any neglect on the part of any such director, manager, secretary or other officer of the company " We observe that the individual Appellants have been held liable for penalty by virtue of their vicarious liability arising from the provisions of Section 42 (2) of FEMA. Therefore, it is not by the virtue of the position that they have been deemed to be guilty of the contravention of the Regulations 2000 (supra) read with the provisions of FEMA, but it has been demonstrated that by their neglect of going through the Board Note and in particular the copy of the letter dated 30.03.2007 of the RBI that they consented to pass the resolution of the Board of TMBL to allow transfer of its shares to the residents outside India wh....
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....nsfer of shares were done in terms of permission granted by RBI vide its letter dated 30/03/2007. But I find that the Board Note prepared by him itself was misleading. I am of the view that conduct of Noticee No. 14 in board meeting held on 13/05/2007 amounts to consent and or/negligence and hence, I am of the view that Noticee No. 14 had contravened the provisions of Regulation 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, issued under the provisions of Section 6 (3) (b) of FEMA, 1999, to the extent of Rs. 113,32,16,884/- in terms of Section 42 (2) of FEMA, 1999." It follows from the aforementioned portions of the Impugned Order that certain facts relating to the Appellant are undisputed and documentary based. In view of the aforementioned, we find the Appellant Shri K K Sharma liable for penalty under Section 13 (1) of FEMA by virtue of his vicarious liability arising in terms of Section 42 (2) of FEMA for the contravention of the Regulation 2000 (supra). 66. We have already discussed that the contravention of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 with ....
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.... For the appreciation of the role of Shri A K Jagannathan, we cite Paragraph 6.29 of the Impugned Order: "6.29 I find that the issue of Noticee No. 16 is different from the rest of the Directors. His main plea is that he had joined the bank on 23.9.2010 as MD & CEO and left the bank on 12.5.2012 and during the board meeting held on 26.12.2011, he had abstained from expressing any view on the share transfer under reference. I find that Noticee No.1 in their letter dated 04/06/2014 addressed to the Directorate of Enforcement, Bangalore, furnished extract of the minutes of the board meeting held on December 26, 2011 relating to transfer of 13,209 shares in the name of M/s. Subcontinental Equities Limited and the extract of the minutes of the board meeting held on June, 11 2012 relating to transfer of 14,080 shares of the Noticee No. 1 bank in the name of M/s. Robert & Ardis James Company Limited, Mauritius. In the meeting of the Board held on 26/12/2011, Noticee No. 15, Noticee No. 16, Noticee No. 17 (since deceased), Noticee No. 18, Noticee No. 19, Noticee No. 20, Noticee No. 21, Noticee No. 22, Noticee No. 23, S/Shri S.C. Sekar, S.R. Aravind Kumar and P. Mahedravel particip....
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....than failed to exercise his role as Managing Director and CEO of TMBL to examine the implications of the Board Note for the Meeting on 26.12.2011. He failed to exercise due diligence to prevent the contravention in spite of the knowledge about what was proposed to be approved by the Board. His role becomes contrasting in view of the dissent of the other three members of the Board. We therefore hold him liable for the penalty under Section 13 (1) by virtue of his vicarious liability arising out of provisions of Section 42 (1) of FEMA. 68. In the Impugned Order the Appellants Shri S. Sundar (Director of TMBL), Shri P. Yesuthasen (Director of TMBL), Shri A. Shidabaranathan (Director of TMBL), Shri K. N. Rajan (RBI Nominee and Director of TMBL) and Shri K V Rajan, (RBI Nominee and Director of TMBL) have been found guilty of the contravention of Regulation 4 of the Regulations 2000 (supra) read with Section 6 (3) (b) of FEMA in terms of the provisions of Section 42 (2) of FEMA. It has been further found in the Impugned Order that these Appellants had voted in favour of the two resolutions passed by the Board on 26.12.2011 and on 11.06.2012, allowing recording of subsequent transfer o....
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....Order: 6.31 .........I also notice from the board note dated 08/06/2012 on "agenda 5" of the above issue, which was signed by Noticee No. 24 also, that M/s. GHI I Ltd had been shown as the name that has been approved by RBI from FEMA angle and that registration was done in the books of Noticee No.1 in the name of M/s. GHI I Ltd (subsidiary owned by Shri Rajat Gupta), which is totally wrong as the permission of the RBI was granted to transfer the shares by way of sale in the name of Shri Rajat Gupta only and not in the name of M/s. GHI I Ltd " This finding clearly shows that the Appellant Shri Deepak C S was negligent in putting-up of the Board Note dated 08.06.2012. We therefore hold him liable for penalty under Section 13 (1) of FEMA in terms of the vicarious liability of his arising from the provisions of Section 42 (2) of FEMA. Consideration of Third Set of Issues relating to SCB 70. The third set of issues involving SCB and its Officer Shri Ranjan Ghosh have emanated from the following: a) The Appellant SCB, Mumbai had allegedly opened Escrow Account which had been used to deposit certain monies and certain shares without the approval of the RBI. ....
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...., Mauritius which had privity of contract with Arranger and Corsair Investment LLC for identification of the purchasing entities. It was emphasized that M/s SCB, Mauritius acted as Escrow and Transaction Settlement Agent while the Appellant had the role and responsibility of a sub-agent. Ld. Counsel also stated that it is for the convenience sake that the accounts were labelled as Escrow Accounts. The Appellant argued that as a sub-agent the Appellant had informed TMBL vide letter dated 12.05.2007, requesting TMBL to transfer shares to 7 Foreign Investors whose names were not in fact approved by RBI whereas on the same day SCB, Mauritius had written a letter to the transferers of the TMBL shares to confirm the sale of TMBL shares in favour of Foreign Investors whose names were approved by RBI. The explanation given by the Appellant was that they as sub-agent acted on instructions. The contention made was that the Appellant wrote to TMBL as custodian for the financial institutions, while SCB, Mauritius wrote to the transferors as an Escrow Agent. 72. The Appellants have challenged the Impugned Order on the grounds that there was no contravention of the Deposit Regulation 2000 sin....
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....manner in which it was played out are revealed from the following portions of the Paragraph: "6.54.3 .........As already observed, of the documents furnished by Shri Jaydeep Jayakar, I find there was a letter dated 12 May, 2007 of M/s. Standard Chartered Bank (Mauritius) Limited, Mauritius addressed to Noticee No. 25, wherein it has been mentioned that they (M/s. Standard Chartered Bank (Mauritius) Limited) had been appointed as Escrow and Transaction Settlement Agent in terms of an Escrow and Transaction Settlement Agreement on 30 March, 2007 ("Original Agreement") executed between Arranger, Corsair and M/s. Standard Chartered Bank (Mauritius) Limited as the Escrow and Transaction Settlement Agent as amended by an Amended And Restated Escrow And Transaction Settlement Agreement (hereinafter referred to the "Agreement") dated 12 May 2007 entered into by and amongst Katra Holdings Limited, Corsair Investments LLC, Standard Chartered Bank (Mauritius) Limited, Broadstreet Group LLC and GHI I Limited. In terms of the Agreement, they (M/s. Standard Chartered Bank (Mauritius) Limited) appointed M/s. Standard Chartered Bank, Fort, Mumbai (Noticee No. 25) as their sub agent with t....
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....s on behalf of foreign investors as transferees. The signed deeds along with the share certificates were then handed over to the Company Secretary of Noticee No. 1 for registration and transfer of the shares. Noticee No. 1 registered the shares on 14.05.2007 in the names of various foreign investors and the respective share certificates were handed over to him. A total of 95,418 shares were handed over for custodial purposes to him on 14-05-2007 and that out of 95,418 shares, 46,862 shares belonged to non-resident investor shares. In his further statements dated 03/07/2012 and 04/07/2012 given before the Assistant Director, Directorate of Enforcement, Bangalore, Shri Jayadeep Jayakar, inter-alia stated that as per the amended and restated Escrow & Transaction Settlement Agreement dated 12-05-2007 Noticee No. 25 was appointed as the sub-agent for SCB Mauritius and accordingly, Noticee No. 25 opened an INR Denominated account titled "SCB Project Windmill (Sale Consideration) Escrow Account" for remitting sale consideration of the shares of Noticee No. 1 payable from the US dollar denominated account -SCB Account Project Windmill Escrow Account (USD Account) maintained with SCB Maurit....
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....es were not approved by RBI whereas on the same day SCB, Mauritius has written a letter to the transferors of the TMBL shares to confirm the sale of TMBL shares in favour of foreign investors whose names were approved by RBI. This shows that the arrangement/agreement between SCB Mauritius and SCB India (both belong to the SCB, UK group) was in fact an arrangement of convenience rather than being an 'agent-sub agent' relationship which merely existed on paper. This also shows that the above resident transferors of TMBL shares were misled by SCB, Mauritius by informing them that their shares are being transferred to the foreign investors in accordance with the approval of the RBI which they knew would be transferred to the foreign investors not approved by RBI as Noticee No.25 had on the same day requested Noticee No.1 to transfer the shares in the names of such Foreign Investors.............. ........ It cannot be denied that SCB, Mauritius is the WOS (wholly owned subsidiary) of Standard Chartered Plc, a company incorporated in England and SCB, India is its (Standard Chartered Plc) branch in India. So SCB, Mauritius and SCB, India both have the same entity viz. Sta....
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....e names were not approved by RBI whereas on the same day SCB, Mauritius has written a letter to the transferors of the TMBL shares attaching list of the foreign investors (transferees) as approved by RBI. In my view, the opening of this current account titled SCB Project Windmill (Sale Consideration) Escrow Account and holding of 1,12,151 shares in the name of SCB Project Windmill (Shares) Escrow Account are part of escrow arrangement undertaken by Noticee No. 25. I do agree that Noticee No. 25, as a commercial entity is free to enter into contract with any other entity as they like. There can be no dispute about it. The problem arises when for loan granted by an overseas bank, property in India is sought to be controlled or held in escrow without necessary permission of the RBI, in which Noticee No. 25 played a key role. Also, there can be no dispute about an Authorised Person opening accounts permitted under Foreign Exchange (Deposit) Regulations, 2000, but the problem arise only when the account was opened as part of escrow, that too when prior permission of RBI that was required to be obtained was not obtained.......... ......... Being an Authorised Person, Noticee No.....
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....t from or with a person resident outside India." Plain reading of Foreign Exchange Management (Deposit) (Third Amendment) Regulations, 2007 and the A.P. (Dir Series) Circular No. 62 dated 24/05/2007 clearly shows that prior permission of RBI was required for opening an escrow account for transfer of shares before 24/05/2007. Subsequently, vide Notification No.FEMA. 162/2007- RB dated September 18, 2007 the Foreign Exchange Management (Deposit) Regulations, 2000 (Notification No. FEMA.5/2000-RB dated May 3, 2000) got amended to include: "2A Non-resident acquirers may, subject to the terms and conditions specified in Schedule 8, open, hold and maintain Escrow Account and Special Account with Authorised Dealers in India without prior approval of the Reserve Bank, for acquisition / transfer of shares / convertible debentures through open offers /delisting / exit offers, subject to the relevant Security Exchange Board of India (SAST) Regulations or any other applicable Security Exchange Board of India Regulations/provisions of the Companies Act, 1956." This amendment which was introduced on 18/09/2007 and was effective from 24/05/2007 allowed opening of escrow....
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....f the view that Noticee No. 25 had contravened the provisions of Regulation 3 of Foreign Exchange Management (Deposit) Regulations, 2000 issued in terms of section 6 (3) (f) of FEMA, 1999 to the extent of Rs. 113,32,16,884/-." 76. With regard to the alleged contravention of the Regulations, 2000 relating to Guarantee, the Ld. AA has made the following findings in Paragraphs 6.55.1, 6.55.2 and 6.55.3 of the Impugned Order, of which we cite the following parts as under: "6.55.1 I find that Noticee No. 25 vide their letter dated 23/06/2015 addressed to the Adjudicating Authority had furnished facility letters dated 09/05/2007 addressed separately to M/s. RST Limited and M/s. GHI I Limited by M/s. Standard Chartered Bank (Mauritius) Limited for grant of short-term loan facility of US$38,00,000 and US$ 1,80,00,000 respectively. In both the letters, under the heading Customer's representations and warranties and covenants at para (3.1) (b) (i) it has been mentioned that "By signing this Facility Letter, you covenant and agree and undertake with the Bank at all times till the Facility is fully repaid that you shall not enter into any scheme of expansion, merger, amalgamati....
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....ansactions including sale, mortgage etc. Thus, Noticee No.25 not only obtained physical control of TMBL shares that were purchased by M/s. RST Limited and M/s. GHI I Limited but also got the right to enter into any kind of transactions in respect of such TMBL shares including sale or mortgage, etc. Thus, Noticee No. 25 contravened Regulation 3 of Foreign Exchange Management (Guarantees) Regulations, 2000 issued under section 6(3)(j) of FEMA, 1999 by undertaking the transaction of taking physical control of TMBL shares belonging to M/s. RST Limited and M/s. GHI I Limited through the 'Power of Attorney' structure. This transaction undertaken by Noticee No.25, who is a resident in India, has the effect of guaranteeing the debt of M/s. SCB (Mauritius) Limited owned by M/s. RST Limited and M/s. GHI I Limited who are persons resident outside India....... 6.55.2 I notice that M/s. SCB (Mauritius) Limited also advanced a loan of USD 20,000,000 and USD 13,600,000 to M/s. Katra Holdings Limited on 29/12/2006 and 09/05/2007 respectively. I also notice in the facility letter dated 29/12/2006 of M/s. Standard Chartered Bank (Mauritius) Limited addressed to M/s. Katra Holdings L....
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.... in its custody physical TMBL shares offered as security to the SCB Mauritius as per the facility letter dated 29/12/2006 from SCB, Mauritius to Katra Holdings Limited. As regards, the deposit of title deeds of seven properties relating to M/s. Arudrama Development Pvt Ltd and 26 properties of Shri Ramesh Vangal, I notice from the statement dated 06/05/2013 of Noticee No. 26, when it was pointed out to him as to whether Noticee No. 25 was not aware of the fact that receipt of title deeds of immovable properties in India itself constituted one end of the mortgage as per the Transfer of Property Act, 1882 in India and as to who paid the mortgage money, Noticee No. 26 answered that it was at the behest of Standard Chartered Bank (Mauritius) Limited that Noticee No. 25 accepted and became security agent pursuant to the "irrevocable Undertaking to create mortgage cum Power of Attorney. He added that Standard Chartered Bank (Mauritius) Limited had not instructed Noticee No. 25 to obtain necessary approvals from any of those regulatory or governmental agency, as contained in clause (b) of the Irrevocable Undertaking to create mortgage cum power of attorney. He also stated that the Irrevoc....
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....nsfer of Property Act. But a Court may presume under Section 114 of the Evidence Act that under certain circumstances a loan and a deposit of title-deeds constitute a mortgage. But that is really an inference as to the existence of one fact from the existence of some other fact or facts. Nor the fact that at the time the title-deeds were deposited there was an intention to execute a mortgage deed in itself negatives, or is inconsistent with, the intention to create a mortgage by deposit of title-deeds to be in force till the mortgage deed was executed." I find that in the instant case all the three ingredients viz. (i) debt, (ii) deposit of title-deeds; and (iii) an intention that the deeds shall be security for the debt are fulfilled and therefore the pledge of property documents amount to guarantee within the meaning of the provisions of Foreign Exchange Management (Guarantees) Regulations, 2000. Regulation 4 stipulates the types of guarantees that can be given by an authorised dealer. Providing of collateral/ guarantee by Noticee No. 25 by taking into custody of TMBL shares and original sale deeds of land in lieu of which M/s. Standard Chartered Bank, Mauritius granted ....
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.... out clearly show that the functionalities of the Escrow Agent were carried out by SCB, Mumbai. It is obvious that since the arrangements were created for transfer of shares of TMBL, located in India, the transactions relating thereto had to be performed through a Banking Entity in India. Therefore, SCB, Mumbai under the ostensible role of sub-agent ended up performing the functions of its so called principal SCB, Mauritius. 78. The Appellant SCB, Mumbai has challenged the finding of the Ld. AA that the Appellant Bank acted independently of SCB, Mauritius made on the basis of the letter dated 12.05.2007 issued by the Appellant to TMBL. The Appellant contended that it wrote the said letter as a custodian for the financial institutions and letter of SCB, Mauritius was written to the transferors of the shares in its capacity as an Escrow Agent. We find that the Appellant has contradicted its claimed position that it was a sub-agent of SCB, Mauritius by making the aforementioned contentions. The content of the letter dated 12.05.2007 written by the SCB, Mumbai under the signature of Shri Jayadeep Jayakar requested TMBL to transfer the shares in the name of the foreign entities which....
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....opened without the RBI permission. The argument of the Appellant that it was merely a current account in which the money came in on 14.05.2007 and also exited from the same account on that very same day does not takeaway its use as an Escrow Account, so as to ensure that money is remitted from the buyers of the shares abroad to the sellers of the shares in India, while the Appellant SCB, Mumbai held on to these shares in the Shares Account. The conducting of these transactions in this manner through the SCB, Mumbai leads to inescapable inference that whatever may be the arrangement on paper the role of SCB, Mumbai was that of an Escrow Agent. We therefore hold that the contravention of the Regulations 2000 relating to Deposit is established. 80. It is on record that the SCB, Mauritius advanced loan of USD 20,000,000 and USD 13,600,000 to M/s Katra Holdings Ltd. on 29.12.2006 and on 09.05.2007 respectively. Further, SCB, Mauritius granted short term loan facility of US $ 38,00,000 and US $ 1,80,00,000 to M/s RST Ltd. and M/s GHI I Ltd. respectively vide facility letters dated 09.05.2007. The Appellant has run down the significance of Paragraph 3.1 (b) (i) of letters dated 09.05.2....
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....ank, no person resident in India shall give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the effect of guaranteeing, a debt, obligation or other liability owed by a person resident in India to, or incurred by, a person resident outside India. It is to be noted from the provisions that even undertaking a transaction by whatever name it may be called which has the effect of guaranteeing a debt or an obligation and any other liability incurred by a person resident outside India was prohibited. Therefore, the protestation by the Appellant SCB, Mumbai that the keeping of the TMBL shares owned by those, who had taken loan abroad and further keeping the title deeds of the properties in India did not amount to pledge or security fail to satisfy the requirements of the provisions of Regulations 2000 relating to Guarantee. The question about whether SCB, Mauritius having not liquidated the shares of TMBL even on default of loan is best answered from the fact that the transaction of keeping the shares and the security in the SCB Project Windmill Shares Account had the effect of providing a Guarantee, which cannot be overlooked merely b....
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....diligence to prevent such contravention. On the contrary, the materials relied by the Directorate of Enforcement, clearly establish that Noticee No. 26 was in charge of and was responsible to the conduct of three divisions of Noticee No. 25, which dealt with the impugned transactions " Ld. Counsel for the individual Appellant Shri Ranjan Ghosh has argued that the manner in which the Appellant was in-charge of and responsible to the Company for its business has not been brought out by the Respondent Directorate. We observe here that the issue at hand is with respect to the contraventions of Deposit Regulations 2000 and Guarantee Regulations 2000 and therefore the transactions leading to the said contraventions have been investigated. It is on record that the opening of the Escrow Accounts and matters relating to holding of shares were the responsibility of three Divisions of SCB, Mumbai namely Operations, Client Service and Product. The individual Appellant was the Business Head in-charge of all the three Divisions. The individual Appellant has also raised preliminary objections which have already been disposed of in the Paragraphs from 50 to 55 of this Order. The grounds raised ....
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....ulated in that fashion, Noticee No. 2 was found to be residing in India during the financial year 2006-2007 for a period of 191 days i.e. exceeding 182 days.......... .........This itself shows that the visits made by Noticee No. 2 abroad were for finite period and did not exhibit his intention to stay outside India for an uncertain period, despite his having set up a company in Singapore and having paid taxes for income generated out of it. The intention of the Noticee No. 2 to stay outside India for an uncertain period during the period of impugned transaction is absent on the basis of facts of this case. It is also important to note Noticee No.2 is also having a huge business empire in India as well..... .......These exclusions, in my opinion, do not apply to Noticee No.2 as the facts do not indicate his intention to stay outside India for an uncertain period. He has been frequently travelling to India to look after his business interests " 83. Ld. Counsel for the Appellant argued that the Co-ordinate Bench of this Tribunal in its Final Order dated 15.10.2025 in the matter of A.D., E.D., Chennai vs. Mr. Nesamanimaran (FPA-FE-98/CHN/2022) has upheld the setti....
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....iew of the aforementioned, we have to concur with the Final Order dated 15.10.2025 of the Co-ordinate Bench of this Tribunal and hold that as on the date of receipt of the said Foreign Exchange in the bank account of the Appellant in Singapore, the Appellant was a person resident outside India. Hence, the contravention of the provisions of Section 4 and Section 8 of FEMA read with Regulation 3 and Regulation 4 of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000 are not established against the Appellant Shri M G M Maran. Penalty amounts: 85. Almost all the Appellants have pleaded for making the penalties proportionate to their role and involvement in the contraventions of the aforementioned provisions. We also find that this Tribunal vide Order dated 14.10.2025 has noted that the Appellant TMBL did not press for the Application for waiver of the pre-deposit of the penalty amounts of Rs. 11,33,21,688/- plus Rs. 5,66,60,844/- since full amount of penalty had been deposited by the Appellant TMBL. We ....
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....shed against the Appellant Shri M G M Maran, the penalty of Rs. 35,00,00,000/- is set aside. The penalty amount of Rs. 1,00,00,000/- imposed in the Impugned Order for the specific role for which the vicarious liability was invoked under Section 42 (2) of FEMA for the contraventions with respect to the first set of issues, is maintained. The excess amount of pre-deposit, if any, made by the Appellant shall be refunded. 3. The penalty amount on the Appellant Shri G Narayana Moorthy is reduced to Rs. 10,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 4. The penalty amount on the Appellant Shri R Kannan Adityan is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 5. The penalty amount on the Appellant Shri A Rajagopalan is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 6. The penalty amount on the Appellant Shri V Bhaskaran is reduced to Rs. 1,00,000/- whi....
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....hri S Sundar is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 17. The penalty amount on the Appellant Shri P Yesuthasen (through LR) is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 18. The penalty amount on the Appellant Shri A Shidabaranathan is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 19. The penalty amount on the Appellant Shri K N Rajan is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 20. The penalty amount on the Appellant Shri K V Rajan is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. 21. The penalty amount on the Appellant Shri Deepak C S is reduced to Rs. 1,00,000/- which shall be adjusted agai....