2017 (5) TMI 852 - AT - FEMA

Violation of Section 3 of FEMA, 1999 - Held that - In the present case, the remitter and investor are different and are not in accordance with the Regulations made by the Reserve Bank of India under the Act. The remittance 1 and remittance 2 were made by the person other than the investor and are in direct contravention of Regulation 5 of FEMA (Permissible Capital Account Transactions) Regulations, 2000. From the perusal of record, it is clear that in the instant matters, there is contravention of the provisions of Section 3 (b) .Section 6(2), 6(3)b & Section 42 (1) of FEMA, 1999 read with Regulation 5 (1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India), Regulations, 2000, Paragraph 8 of schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, Regulation 5 of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, and Para 9 (1) (A) of schedule to the Foreign Exchange Management (Transfer one Issue of Security by a Person Resident outside India) Regulations, 2000. We agree with the observations of the Adjudicating Authority expressed in para nos. 73 to m of the Adjudication Order. SCNs 1 to 4 were rightly issued. The penalty amount, if any deposited by the appellants as pre-deposit will be adjusted and the balance amount will be paid by them individually within a period of sixty days from the date of communication of the order, failing which the Enforcement Directorate may recover in accordance with law. With these directions, the instant appeals are disposed of with some modification in the amounts of penalties imposed against all the appellants taking into consideration all the facts and circumstances of the case.

Summary

Issues Involved:
1. Jurisdiction and applicability of FEMA to non-residents.
2. Compliance with FEMA regulations regarding foreign investments.
3. Validity of penalties imposed by the Adjudicating Authority.

Issue-wise Detailed Analysis:

1. Jurisdiction and Applicability of FEMA to Non-Residents:
The appellants contended that the provisions of FEMA apply only to entities incorporated in India or individuals who are citizens of India and that the impugned order seeks to bring the appellants within the ambit of FEMA without jurisdiction. The Tribunal rejected this argument, stating that section 1(3) of FEMA makes it clear that non-residents are also subject to the provisions of FEMA. The Tribunal agreed with the Adjudicating Authority's findings that the appellants fall under the category to whom FEMA applies, as per section 2(v) sub-clauses (ii), (iii), and (iv) of FEMA, 1999.

2. Compliance with FEMA Regulations Regarding Foreign Investments:
The Tribunal examined the compliance with various provisions of FEMA and its regulations, including sections 3(b), 6(2), 6(3)(b), and 42(1) of FEMA, 1999, and regulations under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, and the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.

The Tribunal found multiple contraventions:
- Payment was not made by the investor.
- Payment was not received by the person issuing the shares.
- Remittance was not reported within 30 days.
- Amount was not refunded within 180 days from the date of receipt of inward remittance.

The appellants argued that the remittances were made in good faith and that the foreign exchange had come into the country through normal banking channels, causing no loss to the exchequer. However, the Tribunal held that the transactions were beyond the scope of FEMA without the required approvals from RBI and FIPB, which had been categorically disapproved.

3. Validity of Penalties Imposed by the Adjudicating Authority:
The Adjudicating Authority imposed a total penalty of ?98,35,00,000/- against all the appellants for various contraventions. The appellants argued that the penalties were arbitrary, illegal, and disproportionate to the alleged contraventions. The Tribunal acknowledged that the penalties were excessive, noting that the total amount of remittance was ?33,22,45,444.23/-, and the penalties imposed were almost thrice this amount.

The Tribunal decided to reduce the total penalty amount by 30%, bringing it down to ?68,84,50,000/-. The penalties for each appellant were accordingly reduced proportionally.

Conclusion:
The Tribunal confirmed the applicability of FEMA to non-residents and upheld the findings of contraventions under various provisions of FEMA and its regulations. However, it found the penalties imposed to be excessive and reduced them by 30%, thereby modifying the Adjudicating Authority's order. The appellants were directed to pay the reduced penalties within sixty days, with adjustments for any pre-deposits made.