2019 (3) TMI 823 - AT - FEMA

Offence under FEMA - transaction in foreign exchange undertaken by the Varanasi branch with another company holding no license from the RBI to conduct the said business of money exchange - penalty imposed - separate license to companies and all its branches - HELD THAT - Considering that the RBI grants license to the company as well as its branches separately, a fact which was reiterated by the learned counsel for the appellant, RMEL, Varanasi cannot take shelter under the main RMEL company located at Mumbai. From the emails it is clear that the consignment was sent from Varanasi. It belies common sense that if the transaction had been undertaken by the Lucknow branch as the appellants have tried to argue at one stage then why should the money/consignment/package be not transferred from Lucknow to Cochin their hub and why carry it to Varanasi and then send it to Cochin. Even the statement of Shri Sandeep Kumar Srivastava, State Head, Uttar Pradesh who reported to the zonal manager confirms that the consignment was transferred from Varanasi directly through Jet Airways via AWB 58979725306 to Cochin. In the present case, the Varanasi branch was not authorised for such dealings but nevertheless they undertook the same. Section 10(4) are the duties prescribed for the authorized person which in this case is not relevant as Varanasi branch is not an authorized person. To that extent, the RMEL, Varanasi branch has contravened the provisions of Section 3(a) of FEMA, 1999. With regard to the zonal manager, Mr. Dasgupta, the emails which have not been denied by him shows his involvement and culpability. He was very much in the knowledge about the whole transaction and the way it has been undertaken. Under the provisions of Section 42(2) of FEMA, he will be therefore deemed to be guilty of the contravention. The appellants in the present two appeals are liable to penalty under Section 13 of FEMA, 1999. But onsidering the case in its totality and the contraventions, hold that the penalty levied has been on a higher side. Reduce the same to ₹ 10,00,000/-(Ten lakhs only) for RMEL Varanasi, and ₹ 1,00,000/-(One Lakh only) for Shri Souvik Dasgupta.

Summary

Issues:
1. Whether the appellants contravened provisions of Section 3(a), Section 4, and Section 10(4) of FEMA, 1999.
2. Whether the Varanasi branch of the company and the zonal manager are liable for penalties under FEMA, 1999.

Analysis:
1. The appellants contended that the Varanasi branch had the RBI's license, but it was later found that the branch did not have a valid license at the relevant time. They argued that the transactions were based on a letter dated 02.01.2007, which was later alleged to be forged. The appellants also claimed that the adjudicating authority did not investigate the role of the other party involved in the transaction. They cited legal judgments to support their arguments. However, the tribunal found that the Varanasi branch undertook foreign exchange dealings without authorization, contravening Section 3(a) of FEMA, 1999.

2. In the case of the zonal manager, it was argued that he acted in good faith based on information provided by a state head regarding the availability of foreign currency. The zonal manager approved the transaction after verifying the empanelment of the other party. It was later revealed that the other party was not authorized by the RBI for foreign exchange dealings. The zonal manager denied direct involvement and argued that there was no evidence against him except for a statement by another employee. The tribunal, however, found emails indicating the zonal manager's knowledge and involvement in the transaction, holding him liable under Section 42(2) of FEMA.

3. The respondent argued that the company and its branches are collectively responsible, emphasizing that the company benefited from the illegal transaction. The company's decision to file a criminal complaint against its employees indicated acknowledgment of FEMA violations. Regarding the zonal manager, the respondent pointed to evidence suggesting direct involvement and knowledge of the transaction. The tribunal concurred, holding both the Varanasi branch and the zonal manager liable for penalties under Section 13 of FEMA, 1999.

In conclusion, the tribunal found both the Varanasi branch and the zonal manager guilty of contravening FEMA provisions. While reducing the initially imposed penalties, the tribunal held the appellants liable for penalties under FEMA, 1999 due to unauthorized foreign exchange dealings and the zonal manager's involvement in the transaction.