2018 (9) TMI 932 - AT - FEMA

Contravention of the provisions of the FERA Act - accepting interest free security deposit of 65 lacs from the branch office of M/s DNV located in Mumbai, as the Regional Manager of M/s DNV had taken up the flat bearing no. No.24 on 20th floor, Kanchanjunga Mumbai for 36 months which belonged to Appellant s brother and sister-in-law and who had signed a Power of Attorney dated 21.05.1987 in favor of Appellant - Held that - It appears from the reading of agreement and fact and circumstances, it was merely a care taker agreement for 3 years. From the very wordings that the lease could be granted means that the transaction of the lease would be totally exempted from the general or special permission of RBI. The agreement had no provision for any forfeiture of the said amount or part thereof. The benefit of doubt goes in favour of the appellant because as per facts of the present case, it would be that any security deposit taken for fulfillment of the terms and conditions would not attract any general or special permission of RBI to be taken. The impugned order is not sustainable as the said caretaker agreement to be a lease agreement and likewise as security deposit as consideration, as the terms receipts and payments‟ visualized in section 9 (1) (b) & (d) of the FERA Act means consideration. It is merely in the case of lease agreement that vested right is created in favor of lessee but in the present case no vested right is created as the said caretaker agreement is only a leave and license agreement and thus the Appellant had temporary lien over the said security deposit. The appellant had no relation with the accused person to whom the appellant has only allowed to use the property of the owner/landlord. The appellant has no criminal record for any offence or have any link and nexus with the (then tenant) directly or indirectly to criminal activities. The money paid by him never transferred outside India. Thus, there is no contravention of any provision committed by the appellant. It is stated on behalf of the respondent during hearing that payment of monthly compensation was payable at the rate of ₹ 9000/- per month but the same was not a subject matter of Memorandum. Therefore, there was no contravention of the provisions of the FERA Act. And also of the Section 9(1) (b) which stipulates in the explanation to the Section that the money has to come from outside India.

Summary

Issues involved:
1. Allegations of contravention under FERA for accepting interest-free security deposit.
2. Show cause notice issued to the appellant and others.
3. Imposition of penalties by the authorities.
4. Appeal filed against the order dated 27.06.1997.
5. Interpretation of FERA provisions regarding the security deposit.
6. Examination of the caretaker agreement and lease agreement distinction.
7. Consideration of RBI permissions for immovable property transactions.
8. Analysis of the appellant's involvement and lack of contravention.

Detailed Analysis:
1. The appellant was charged under sections 9(1)(b) & (d) of FERA for accepting an interest-free security deposit from M/s DNV, leading to allegations of contravention due to the payment being made on behalf of non-residents of India.

2. A show cause notice was issued to the appellant, Shri Ulf T. Freudendaul, and M/s DNV regarding the contravention of FERA provisions, leading to penalties being imposed on them by the authorities.

3. The appellant filed an appeal against the order dated 27.06.1997, claiming to have become a scapegoat under the department's scrutiny and denying any violation of FERA provisions.

4. The appellant argued that the security deposit was refundable and had been returned to M/s DNV after the expiry of the agreement, with no allegations of non-return being made against him.

5. The appellant contended that the security deposit was received in India and not transferred outside the country, emphasizing the lack of instructions from his brother and sister-in-law to accept the amount.

6. The distinction between a caretaker agreement and a lease agreement was crucial, with the appellant asserting that the transaction fell under the former category, exempting it from RBI permissions.

7. The judgment highlighted that the caretaker agreement did not create a vested right in favor of the lessee, and the appellant had a temporary lien over the security deposit without any criminal record or nexus with the tenant.

8. Ultimately, the appeal was allowed, setting aside the impugned order against the appellant based on the lack of contravention of FERA provisions and the specific circumstances of the case.