2013 (5) TMI 604 - HC - FEMA

Untrue declaration - Petitioners had failed to repatriate export proceeds to the extent of Rs.24.18 Crores from overseas buyers within the stipulated period of one year - Power to compound contravention - Held that - As Petitioners states that they have no objection to pursuing the compounding applications in the manner as indicated by the communications of the Reserve Bank. The letters issued by the Reserve Bank on 28 March 2013 intimate to the Petitioners that they would in the first instance have to apply through the Panaji Regional Office of the bank to the Foreign Exchange Department of the Bank upon which, a decision would be taken. The learned Senior Counsel appearing on behalf of the Reserve Bank states that in the event that the Petitioners submit a complete set of documents within a period of one week from today to the Panaji Regional Office, a decision thereon shall be taken by the Foreign Exchange Department within a period of four weeks thereafter and that the application for compounding shall thereupon be processed and decided in accordance with law within a period of three months. Insofar as the adjudication proceedings are concerned, since the Petitioners are pursuing an application for compounding the contravention before the Reserve Bank, the Director and the Special Director of the Directorate of Enforcement informs the Court that without prejudice to the rights and contentions of the Department in the notice to show cause, the adjudication proceedings shall not be pursued for a period of four months from today in order to enable the Reserve Bank of India to take a final decision on the application submitted by the Petitioners. The Petitioners shall in the meantime file a reply to the notices to show cause within a period of four weeks from today & the adjudication proceedings shall not be pursued for a period of four months in order to enable the Reserve Bank to take a decision in accordance with law on the application for compounding.

Summary

Issues:
1. Allegations of furnishing untrue particulars in export declaration and failure to repatriate export proceeds.
2. Contravention of provisions of the Foreign Exchange Management Act by acquiring funds outside India without permission.
3. Violation of regulations by opening and operating bank accounts outside India.
4. Transfer of funds without permission of the Reserve Bank.
5. Compounding application process and its considerations.
6. Communication and actions by the Reserve Bank of India.
7. Adjudication proceedings and compounding application pursuit.

Analysis:

1. The case involved allegations against the Petitioners for furnishing untrue particulars in export declarations and failing to repatriate export proceeds as per regulations. Notices to show cause were issued regarding these contraventions, along with allegations of acquiring funds outside India without permission and transferring funds without authorization.

2. The Petitioners did not initially reply to the show cause notices, leading to the initiation of adjudication proceedings. However, a compounding application was later filed before the Reserve Bank of India under Section 15 of the Foreign Exchange Management Act, seeking to resolve the contraventions through compounding within the stipulated time frame.

3. The Reserve Bank of India, due to an ongoing investigation by the Directorate of Enforcement, initially returned the compounding applications. Subsequently, a fresh application was filed by the Petitioners for compounding. The legal framework for compounding contraventions under the Act was governed by Section 15, with specific rules and circulars issued by the Central Government and the Reserve Bank of India.

4. The Court emphasized the judicious exercise of compounding powers, considering factors such as national security, money laundering, and regulatory infringements. The public interest element in enforcing regulatory statutes like the Foreign Exchange Management Act was highlighted, indicating that compounding decisions must balance individual breaches with broader societal concerns.

5. Following communications from the Reserve Bank, the Petitioners agreed to pursue the compounding applications as per the Bank's instructions. The Bank specified the process for submission and review of the compounding application, outlining the steps to be taken for consideration and decision-making.

6. In light of the ongoing compounding application process, the adjudication proceedings were temporarily halted to allow the Reserve Bank to make a final decision on the compounding application. The Petitioners were directed to file replies to the show cause notices within a specified period, while the adjudication proceedings were paused for four months to facilitate the compounding decision.

7. The Court disposed of the petition without costs, keeping all rights and contentions of the parties open regarding the compounding application and adjudication proceedings. The challenge to the constitutionality of certain rules was not pursued, and the case was concluded with directions for the ongoing processes and applications.