2019 (5) TMI 1573 - AT - FEMA

Stay petition - whether the appellants have been able to make out a prima facie case in their favour? - claim taken up with RBI for compounding - received inward foreign remittances from M/s. Infinity Financial Limited, Mauritius but failed to either intimate the Reserve Bank of India within 30 days of the inward remittance, or failed to issue shares to the foreign investors within the stipulated 180 days of the inward remittances - HELD THAT - In this case, the appellants have not denied that they did not inform the RBI within the stipulated period as mandated by RBI, nor did they issue shares to the foreign investor within 180 days as again mandated by the RBI. Instead the money was diverted to buy properties and land in their name which was not the purpose of the inward remittance. In fact, in the stay petition the appellant at para 5 have accepted their liability which was not discharged. Their claim that they had taken up with RBI for compounding also does not strengthen their argument in as much as the RBI had returned their compounding application vide their letter dated 22.08.2012 but the appellants never considered filing an appeal or representation against the said letter of RBI. They, therefore, way back in 2012 had accepted the non-compounding by the RBI. They have pleaded financial hardship but have not submitted any document in support of the same. Thus find that the appellants have been able to make a prima facie case in their favour and hence the stay petition is rejected. Since their financial hardship plea is not backed by any documentary evidence, the same cannot be accepted. However, feel that the interests of justice would be served if the appellants are directed to predeposit 50% of the penalty levied within a period of two months from today.

Summary

Issues: Stay petition against adjudication order imposing penalties under FEMA for failure to comply with RBI regulations on foreign remittances and share issuance.

Issue 1: Merits of the Penalty Imposed
The appellants argued that the failure to comply with RBI regulations was a technical offense and did not warrant a penalty. They claimed lack of intent to contravene the law and highlighted their attempt to seek compounding from RBI. They relied on the case law of Bank of Baroda vs. ATFE to support their argument. However, the respondent contended that mens rea was not required in civil proceedings as per the Supreme Court judgment in The Chairman, SEBI vs. Shriram Mutual Fund & Anr. The respondent also emphasized that the absence of compounding from RBI indicated a violation of the law rather than a technical offense.

Issue 2: Prima Facie Case
The tribunal examined the arguments from both parties and referred to the principles outlined in the Bank of Baroda case regarding establishing a prima facie case. It was noted that the appellants did not dispute the delay in informing RBI about the remittances or issuing shares to foreign investors within the stipulated time frame. Instead, the funds were diverted for other purposes. The tribunal highlighted that the appellants had acknowledged their liability in the stay petition and failed to challenge RBI's decision on compounding since 2012. Moreover, the appellants' claim of financial hardship was unsupported by any documentary evidence.

Issue 3: Decision
After careful consideration, the tribunal found that the appellants had not established a prima facie case in their favor. Consequently, the stay petition was rejected. However, to ensure justice, the tribunal directed the appellants to predeposit 50% of the penalty within two months. The compliance was scheduled for reporting on 30th July 2019.

In conclusion, the judgment addressed the arguments presented by both parties regarding the penalty imposed under FEMA for non-compliance with RBI regulations on foreign remittances and share issuance. The tribunal emphasized the importance of establishing a prima facie case and considered factors such as non-compliance history, lack of challenge to regulatory decisions, and absence of evidence supporting financial hardship claims. The decision to reject the stay petition while requiring a partial predeposit aimed to balance the interests of justice and regulatory compliance.