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2019 (8) TMI 133 - AT - FEMAFDI - Automatic route or not - Inward remittances made into India in the year 2008, through normal banking channels (with relevant foreign inward remittance certificates) - bidding of IPL - It is case of appellants that the appellants bid in respect of the Rajasthan Royals franchise as legitimate and successful, after due scrutiny of all the information and proposed investment structure as furnished along with the bid - 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 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, Regulation 5 of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 and Para 9 (1)(A) of schedule 1 to the foreign Exchange Management (Transfer or issue of Security by a person Resident outside India) Regulation, 2000 - imposition of penalties. HELD THAT - It is not open to the Respondent to invoke Section 42 (1) of FEMA and impose penalty on individuals on the sole basis that such individuals held the position of directors in the respective companies. It has been consistently held by the Hon ble Supreme Court and various High Courts that specific findings are required to be recorded against any individual sought to be penalized under the deemed liability provisions such as Section 42 (1) of FEMA, particularly as to their specific role and function in the company. The mere fact that individuals are directors in a company cannot be the sole basis for imposition of penalty upon such individuals under Section 42 (1) of FEMA. Test for determination. The present case is not a case where it can be concluded or any benefit of doubt is given to the appellants for automatic route. The present case cannot be compared with another case of sport event, as the facts and circumstances were materially different. The real thing is how the appellants as per facts have dealt with the matter at the appropriate time and how many times. From the entire facts and circumstances, it appears to this Tribunal whether it is a bona-fide or not, but violation has occurred. The appellants were trying to obtain the post-facto approval, but were not successful - Therefore, after refusal of approval for two times, the appellants cannot be allowed to take the benefit of automatic route. In the present case, exorbitant penalty has been imposed upon the individuals arrayed herein without recording any findings on the specific roles of the said individuals. It is also important to highlight that judicial precedents clearly establish that the onus of proving the role of an individual and specifically proving that the said person was in day to day management of the affairs of the company is that of the Respondent Department. It is evident from a perusal of the Impugned Order that the Respondent has completely failed to discharge the said burden of proof. Provisions of Section 42(1) of FEMA have been simply reproduced in the Impugned Order to justify the imposition of penalty - The Supreme Court and various High Courts have consistently held that merely repeating the golden words of the section is not sufficient to create liabilities under the section. It is something more has to be brought on record to show that the person was in-charge and responsible to the functioning of the company and noticee officers have some motive and involved in the abetment for the purpose of benefit from the transaction, in question, by themselves or for the benefit of the company directly or indirectly while imposing the penalties. Similarly, the conduct of good faith, honesty and mens rea cannot be excluded from consideration while quantum of imposing penalties. In light of the parameters clearly laid down by the Hon ble Supreme Court and various High Courts regarding the standard and burden of proof required to be discharged for invocation of deemed liability under Section 42 (1) of FEMA, the imposition of penalty on all the individuals arrayed herein is liable to be set aside on account of non-compliance with the said established parameters. It is evident that the parameters for imposition of penalty in the present quasi criminal proceedings initiated against the Appellants under FEMA have not been complied with by the Respondent while imposing the exorbitant penalty of INR 98.35 Crores vide the Impugned Order - there are contraventions happened due to bona fide or not by the appellants and it is also settled law that the plea of mens rea cannot be accepted if contraventions have happened as it is not a valid ground to ignore the offence of committed. Still there are cases where one can conclude the said contraventions are ex facie technical and venial in nature. As far as the imposition of penalty is concerned, the appellants have already deposited a sum of ₹ 15 crores with the respondent as consolidated amount on behalf of all the appellants as a pre-deposit - Considering the overall facts and circumstances, the appeals are partly allowed by modifying the order by holding that penalties already deposited by the appellants is reasonable and the same be treated as penalties imposed in the present set of appeals. Appeal disposed off.
Issues Involved:
1. Whether there has been a breach/contravention of the provisions of FEMA and Regulations made thereunder. 2. Whether the breach/contravention of the provisions of FEMA and Regulations made thereunder are technical/venial in nature. 3. Whether imposition of any penalty was justified on the companies and individuals in question. 4. The quantum of penalty proportional to the gravity of the alleged breach. 5. The liability of directors under Section 42(1) of FEMA. Issue-Wise Detailed Analysis: 1. Breach/Contravention of FEMA Provisions: The case revolves around the alleged contraventions of the provisions of FEMA, 1999 by the appellants. The contraventions pertain to inward remittances made into India in 2008, which were used for securing and making operational the 'Rajasthan Royals' IPL franchise. The Enforcement Directorate found that the appellants violated Section 3(b), Section 6(2), 6(3)b, and Section 42(1) of FEMA, 1999, along with related regulations under FEMA. The main allegations were that the remittances were either made by the wrong entity or received by the wrong entity, and the necessary regulatory approvals were not obtained. 2. Technical/Venial Nature of Breach: The appellants argued that the alleged contraventions were technical and venial in nature. They emphasized that all remittances were made through normal banking channels, the funds remained in India, and were used for the intended purpose of securing and operationalizing the IPL franchise. They also highlighted their bona fide efforts to seek approval from regulatory authorities (RBI and FIPB) and the fact that no shares were issued against the remittances for over 11 years, causing financial detriment to the investors. 3. Justification for Imposition of Penalty: The Enforcement Directorate imposed a total penalty of ?98.35 crores on the appellants. However, the Tribunal noted that the imposition of penalty in quasi-criminal proceedings must be guided by the principles of proportionality and fairness. The Tribunal found that the penalties imposed were exorbitant and not justified given the technical nature of the contraventions, the bona fide conduct of the appellants, and the lack of any loss to the exchequer. 4. Quantum of Penalty: The Tribunal reduced the total penalty from ?98.35 crores to ?15 crores, considering the technical nature of the contraventions, the bona fide efforts of the appellants, and the lack of any financial gain or loss to the exchequer. The penalties were adjusted based on the roles and involvement of the individuals and entities in the contraventions. 5. Liability of Directors under Section 42(1) of FEMA: The Tribunal examined the liability of individual directors under Section 42(1) of FEMA, which holds individuals in charge of the company liable for contraventions. The Tribunal found that the imposition of penalties on individuals was not justified as there was no evidence that they were involved in the day-to-day management of the companies at the time of the contraventions. The penalties on several individuals were set aside, while limited penalties were imposed on others based on their involvement. Conclusion: The Tribunal modified the impugned order, reducing the total penalty to ?15 crores, which was already deposited by the appellants. The penalties on individual directors were either set aside or reduced based on their involvement and roles in the contraventions. The Tribunal also allowed the appellants to seek regulatory approval for issuing shares to the remitters or refund the inward remittances as per the provisions of FEMA.
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