TaxTMI 
TaxTMI 
2026 (9) TMI 1217
X X X X Extracts X X X X
X X X X Extracts X X X X
....er in Original (OIO) dated 08.07.2020 were upheld in the Impugned Order. Ld. Adjudicating Authority (AA) vide its Order No. ADJ/01/FEMA/DLZO-1/2020/DD(NA) dated 08.07.2020 imposed penalty of Rs. 1,00,00,000/- on M/s ATPL for the contravention of Section 6 (3)(b) of Foreign Exchange Management Act, 1999 (FEMA) read with Paragraphs 2, 8, 9 (1)(A) and 9(1)(B) of Schedule 1 of Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulation, 2000 further read with RBI Master Circular No. 02/2008-09 dated 01.07.2008. Penalty of Rs. 60,00,000/- was imposed on Ms. Prema Radhakrishana, being one of the Director of M/s ATPL and penalty of Rs. 60,00,000/- was imposed on Shri Naveen Patil, being one of the Director of M/s ATPL vide the Impugned Order, for the aforementioned contraventions in terms of Section 42 of FEMA. The property of 2738 Sq. Ft. of space at Mezzanine Floor of Narain Manzil, 23, Barakhamba Road, New Delhi was confiscated under Section 13 (2) of FEMA for the aforementioned contraventions. 2. Ld. Counsel for the Appellants submitted that the Special Director (Appeals) vide order dated 19.10.2022, passed the no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to all the entities from whom the foreign inward remittance have been received and said contravention is merely a technical one. The penalty imposed by the Respondent was unjustifiable since no money had been remitted outside India and that the shares had been allocated and ultimate objective of the remittance had been met. 4. Ld. Counsel for the Appellants further submitted that the Ld. Special Director (Appeals) and Ld. Adjudicating Authority have failed to appreciate that property bearing 1369 sq. ft. of the address Mezzanine Hall, Mezzanine Floor, Narain Manzil, 23, Barakhamba Road, New Delhi, had been procured from amount received by the Appellant Company in lieu of share allocation on non-repatriable basis. Without prejudice, even otherwise if the shares would have been allocated timely, the property could have been purchased from the said amount. As on date, there is no illegality if the property is held by the Appellant Company as the shares for which foreign remittance was received had been duly allocated. The Adjudicating Authority and the Special Director (Appeals) while confirming the confiscation turned a blind eye to the plight of the Appellant Company and the con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with nominal shareholding of just one share of the Company and Sh. Radhakrishnan Gopalan was managing the day-to-day affairs of the Company till his demise in 2011. It is incorrect to hold the Appellant as a person in charge or having control of the day-to-day affairs of the Company only on presumptions and surmises from the reason of being the authorised representative at the time of filing the Declaration dated 30.12.2008 to the authorised dealer. That an authorised representative for a particular action cannot be said to be the person in charge or control of the Company and therefore, the penalty imposed on the Appellant is illegal and unjustified. 7. Ld. Counsel for the Appellants submitted with respect to the Appellant Smt. Prema Radhakrishnan that the Special Director (Appeals) as well as the Adjudicating Authority erred in failing to appreciate that the Appellant was a Director with no role in the alleged transactions and the Respondent failed to prove that she was the only one responsible for executing the transactions under question and related work or had the knowledge of the said transaction. It is appurtenant to note that all the bank and property records conclusivel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gapore. It is also on record from the Profit and Loss Account, that the Company for the Financial Years 2006-07, 2007-08 and 2008-09 had the only source of income as rentals of the real estate. Ld. Counsel argued that the objectives of the Appellant Company mentioned in the Memorandum of Association, showed that the Company was in realty business. Thus, the Appellant Company invested in the prohibited sector of real estate for the purchase of the property. Ld. Counsel reiterated Paragraph 18 of the Impugned Order: "18. The Appellant Company has received a total sum of Rs. 4.13 crores by way of 6 inward remittances out of which a sum of Rs. 3.28 crores was converted to purchase the property situated at Mezzanine Floor of Narian Manzil, 23, Barakhamba Road, New Delhi and balance amount was used towards advancing loans and other investments of the Appellant Company. It was further submitted by the respondent department that from the said facts it is manifestly clear that the property situated at Mezzanine Floor of Narian Manzil, 23, Barakhamba Road, New Delhi was purchased directly out of the money received of FEMA Contraventions and thus, the said property was rightly confis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eign Exchange Management (Transfer or issue of Security by a person Resident Outside India) Regulations 2000 r/w Section 6(3)(b) FEMA 1999. b. Para 9(1)(A) of Schedule 1 of Regulation 5(1) Foreign Exchange Management (Transfer or issue of Security by a person Resident Outside India) Regulations 2000 r/w Section 6(3)(b) FEMA 1999. c. Para 8 of Schedule 1 Regulation 5(1) of Foreign Exchange Management (Transfer or issue of Security by a person Resident Outside India) Regulations 2000 r/w Section 6(3)(b) FEMA 1999. d. Para 9(1)(B) of Schedule 1 Regulation 5(1) of Foreign Exchange Management (Transfer or issue of Security by a person Resident Outside India) Regulations 2000 r/w Section 6(3)(b) FEMA 1999. e. Provisions of Master Circular No. 02/2008-09 dated 1st July 2008 read with Section 6(3)(b) FEMA 1999. 11. In this regard, the relevant provisions of the Foreign Exchange Management (Transfer or issue of Security by a person Resident Outside India) Regulations 2000 are being cited as follows: Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 Notification No. FEMA 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to in sub-regulation (1) of Regulation 5, may purchase shares or convertible debentures issued by an Indian company up to the extent and subject to the terms and conditions set out in this schedule. (2) If the person purchasing the shares under this Scheme proposes to be collaborator or proposes to acquire the entire share holding of a new Indian company, he should obtain a prior permission of Central Government if he has a previous venture or tie-up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field in which the Indian company issuing the shares is engaged. 2. Automatic Route of Reserve Bank for Issue of shares by an Indian company (1) An Indian company which is not engaged in any activity, or in manufacturing of item included in Annexure 'A' to this Schedule, may issue shares or convertible debentures to a person resident outside India, referred to in paragraph 1 upto the extent specified in Annexure B, subject to compliance with the provisions of the Industrial Policy and Procedures as notified by Secretariat for In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia referred to in paragraph 1 in excess of 24 per cent provided it complies with the ceilings specified in Annexure B. xxxxx 8. Mode of payment for shares issued to persons resident outside India A company in India issuing shares or convertible debentures under this Schedule to a person resident outside India shall receive the amount of consideration for such shares - i) by inward remittance through normal banking channels, or ii) by debit to NRE/FCNR account of the person concerned maintained with an authorised dealer/authorised bank. 9. Report by the Indian company i) An Indian company issuing shares or convertible debentures in accordance with these Regulations shall submit to Reserve Bank, A) not later than 30 days from the date of receipt of the amount of consideration, a report indicating: (i) Name and address of the foreign investors (ii) Date of receipt of funds and their rupee equivalent (iii) Name and address of the authorised dealer through whom the funds have been received, and (iv) Details of the Government approval, if any. B) not later than 30 days from the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities, including both roads and bridges. e) Investment in manufacture of building materials f) Investment in participatory ventures in (a) to (e) above g) Investment in housing finance institutions The relevant provisions of the RBI Master Circular No. 02/2008-09 dated 01.07.2008 states the following: "Prohibition on investment in India (i) Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as Trusts) which is engaged or proposes to incorporated or not (such as Trusts) which is engaged or proposes to engage in the following activities : (i) Business of chit fund, or (ii) Nidhi Company, or (iii) Agricultural or plantation activities, or (iv) Real estate business, or construction of farm houses (v) Trading in Transferable Development Rights (TDRs). (ii) It is clarified that Real Estate Business does not include development of townships, construction of residential/commercial premises, roads or bridges. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... remittances were issued on 09.03.2016, after eight years, to Smt. Prema Radhakrishnan. We also find that there is no dispute about of the delay in intimation to the RBI either about the receipt of the foreign remittances for the investment or about the issuance of the shares against such remittances. Therefore, there were clear contraventions of Paragraph 9(1)(A) and Paragraph 9(1)(B) of Schedule-I of Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulation, 2000. Further defence taken by the Appellants is that the compliance with respect to the provision for intimation about the receipt of the Foreign Direct Investment (FDI) and issuance of the shares against such receipts was ultimately met. It has therefore been argued that the delay in meeting such compliance was merely technical and venial. The Appellants have cited the Judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1969 (2) SCC 627]. 14. We cannot agree with the contentions of the Appellants. In this regard, the Judgment dated 23.05.2006 of Hon'ble Supreme Court in the matter of The Chairman, SEBI vs. Shr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Judgment supra have cited the Judgment in Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors. [MANU/SC/0300/1996], wherein even for FERA 1947 it was held that the contravention shall be breach of a civil obligation which would attract penalty irrespective of the fact whether the contravention was made with any guilty intention or not. The Judgment supra cited a number of previous Judgments wherein it was held that mens rea is not an essential element for imposing penalty for breach of civil obligations. His Lordships have clarified that the case of Hindustan Steel Ltd. vs. State of Orissa (supra) pertained to criminal/quasi criminal proceeding as the provisions of the Act under consideration in that case imposed a punishment of imprisonment and fine as well. The present Appeal deals with provisions which are strictly civil obligations and penalty for the contraventions of these provisions are imposable under Section 13(1) of FEMA which provides for penalty only, up to thrice the sum involved in such contravention. 16. The Appellants have strongly contested the confiscation of the property at Mezzanine Floor of Narain Manzil, 23, Barakhamba Road, New Delhi under Secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... only contravention of Paragraph 9(1)(B) of Schedule-I of Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulation, 2000, but also of RBI Master Circular No. 02/2008-09 dated 01.07.2008 read with Paragraph 2 of Schedule-I of Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulation, 2000. We also find that since the remittance had come from the third party and shares were allotted to M/s NGIIL, the transactions occurred in contravention of Paragraph 8 of Schedule-I of Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulation, 2000. In view of these reasons the impugned property has been judiciously confiscated by the Ld. AA in the OIO and fairly upheld by the Ld. Special Director (Appeals) FEMA in the Impugned Order. 17. We find that the individual Appellant Smt. Prema Radhakrishnan never held a position which made her in-charge and responsible for the conduct of the business of the Appellant Company. The Respondent has been unable to unearth any evidence to this effec....