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2019 (5) TMI 1466 - AT - FEMAStatus of BCCI as a company - Adjudication proceedings against BCCI - Transactions done in violations of the provisions of FEMA 1999 - illegal funds were transferred between BCCI and CSA - HELD THAT - BCCI was neither a Body Corporate nor a firm nor an association of individuals, but only an Association of Associations, registered as a society under the Tamil Nadu Societies Registration Act and therefore, BCCI could not be qualified to be treated as company as per the explanation for a company provided under section 42 of FEMA 1999. BCCI is not a company as admitted by all parties, but only an Association registered as a Society. Prima facie, there is force in the submission of learned counsel appearing on behalf of appellant nos. 2 to 11 and it appears that at this stage, being an important legal issue, the same is left for argument at the final hearing of appeals. BCCI is included as a person within the meaning of Section-42 of the Act and if contravention provisions of the Act. At the best, at present BCCI may be asked to pre-deposit the penalties on their behalf at this stage without prejudice till the said important legal issue is finally decided. Whether the funds transferred by BCCI to the CSA account was in the nature of Capital Accounts Transaction or Current Account ? - HELD THAT - It is not the case of the respondent or of the Adjudicating Authority that any of the remittances or transactions made by BCCI to CSA were prohibited or restricted by The Foreign Exchange Management (Current Account Transactions) Rules 2000 . As urgued on behalf of appellants that none of the remittances were prohibited by the above said rules and the remittances made by BCCI to CSA were permissible current account transactions. Counsel for respondent does not dispute that if the transactions fall under current account, the permission of RBI is not necessary. This issue at this stage cannot be finally concluded at this interim stage, however, prima facie, find force in argument of the appellant. Prima facie, at this stage the penalties imposed by the Adjudication Authorities, they are dispensed with to deposit the same with the respondent in the light of important issue to be argued at the final hearing of the appeals. As submitted by all the appellants that the remittances made by BCCI to CSA were not Capital Account Transaction , but, Current Account Transaction . The erroneous reasonings are given in the impugned order while coming to the conclusion that the remittances made by the BCCI to CSA were Capital Account Transactions wherein the Adjudicating Authority holds that the remittances made by the BCCI to CSA were contingent liability. In para 17.13 of the impugned order concludes that BCCI by making remittances to the CSA had created a contingent liability and therefore the transactions were not Current Account Transactions prima facie but Capital Account Transactions . Thus, the finding of the Adjudicating Authority prima facie cannot be accepted at this stage as holding of the IPL 2 was a certain event, as per the agreement dated 30/03/2009 the arrangement between BCCI and CSA was cost plus fees arrangement. It is true that the respondent has made many allegations of malpractices. But the cases are not decided on the basis of allegation. In the final order, the matters are to be decided on the basis of fact, evidence and legal issues on record. The assumption, presumption and perception have no place in the statute, particularly, when the statute is a Special Act. Without expressing any final conclusion on the issues raised by the appellants, as mentioned above and without prejudice, this Tribunal is of the view that the stay applications filed by the appellants are disposed of with the following directions - i) Without prejudice, BCCI is directed to deposit ₹ 10 crores against total penalty amount imposed with the respondent by way of Bank Guarantee on its behalf as well as on behalf of appellant nos. 2 to 9 within four weeks from today. ii) As far as appellant nos. 2 to 9 are concerned, the issue of individual penalty imposed by the Adjudicating Authority will be considered at the time of final hearing of appeal. The prayer made by appellant nos. 10 and 11 of their interim applications is allowed without any condition in view of the grounds made in their appeals. iii) The BG shall be furnished to the satisfaction of respondent initially for a period of six months as this Tribunal is hopeful that all the appeals will be decided by the said time, otherwise the same shall be renewed for a further period of six months after the expiry date.
Issues Involved
1. Interim applications for dispensation to deposit the penalty amount imposed by the Adjudicating Authority. 2. Charges against BCCI and its officials for violations under FEMA. 3. Procedural fairness and compliance with principles of natural justice. 4. Applicability of Section 42 of FEMA to BCCI and its officials. 5. Nature of transactions (Capital Account vs. Current Account). 6. Excessiveness and justification of the penalties imposed. 7. Financial hardship and undue hardship arguments by appellants. Detailed Analysis 1. Interim Applications for Dispensation to Deposit Penalty The appellants sought interim relief from depositing penalties imposed by the Adjudicating Authority. The Tribunal noted that the penalties were substantial, totaling over ?120 crores, and prima facie appeared excessive. The Tribunal directed BCCI to deposit ?10 crores by way of a Bank Guarantee within four weeks, without prejudice to the final outcome. 2. Charges Against BCCI and Its Officials for Violations Under FEMA The Adjudicating Authority imposed penalties on BCCI and its officials for various contraventions under FEMA, including unauthorized payments to Cricket South Africa (CSA), maintaining a foreign bank account without RBI's permission, and failing to repatriate foreign exchange earnings. The Tribunal noted that the charges were extensive and involved significant financial transactions. 3. Procedural Fairness and Compliance with Principles of Natural Justice The Tribunal found that the Adjudicating Authority did not fully comply with Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. Specifically, the Authority failed to provide adequate opportunities for the appellants to present their defense, inspect original complaints, and cross-examine witnesses. This non-compliance with procedural fairness warranted reconsideration of the penalties imposed. 4. Applicability of Section 42 of FEMA to BCCI and Its Officials The Tribunal examined whether BCCI, as an association of associations, could be treated as a "company" under Section 42 of FEMA, which deals with contraventions by companies. The Tribunal noted that this was a critical legal issue that needed thorough examination at the final hearing. The Tribunal observed that BCCI is not a company but an association registered as a society, which raised questions about the applicability of vicarious liability under Section 42. 5. Nature of Transactions (Capital Account vs. Current Account) The Tribunal considered whether the transactions between BCCI and CSA were Capital Account Transactions or Current Account Transactions. The Adjudicating Authority had concluded that the transactions were capital in nature, creating a contingent liability. However, the Tribunal found that this conclusion was not supported by the evidence and that the transactions appeared to be current account transactions, which do not require RBI's permission. 6. Excessiveness and Justification of the Penalties Imposed The Tribunal found that the penalties imposed were excessively high and not justified by the circumstances of the case. For example, the penalty of ?9.72 crores imposed on Mr. M.P. Pandove, a senior citizen and honorary treasurer, was deemed excessive given his role and financial situation. The Tribunal emphasized that penalties should be proportionate and based on a clear legal and factual basis. 7. Financial Hardship and Undue Hardship Arguments by Appellants The appellants argued that the penalties imposed would cause undue financial hardship. The Tribunal considered the financial situations of the appellants, particularly Mr. Pandove, and found that the penalties were indeed excessive and would cause significant hardship. The Tribunal granted relief from the immediate requirement to deposit the penalties, allowing the appeals to proceed without undue financial burden on the appellants. Conclusion The Tribunal directed BCCI to deposit ?10 crores by way of a Bank Guarantee, without prejudice to the final outcome of the appeals. The Tribunal emphasized the importance of procedural fairness and proportionality in imposing penalties. The appeals were scheduled for a final hearing, with the Tribunal indicating that the issues raised required thorough examination and consideration.
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