2019 (8) TMI 682 - AT - FEMA

Acquiring and transferring foreign exchange equivalent to ₹ 208 crores without the prior general or special permission of the RBI - Section 8(1) of FERA, 1973 - allegation is made that M/s. THL have not provided any documents to prove the source of funds which they have invested/remitted to M/s. Sterlite Industries (India) Limited etc. in India and because some of the Directors are common to both the companies, it has been held that this money has actually been funded by M/s. Sterlite Industries (India) Limited to M/s. THL and then back to M/s. Sterlite Industries (India) Limited. HELD THAT - There is no prima facie evidence, documentary or otherwise on which the adjudicating authority has relied upon to conclusively prove the above charges. Whether there is a round tripping of funds, the interests of the common Directors in each of these companies, the actual source of funds, are matters of detail which will be gone into at the final hearing stage. Prima facie, it is found that the appellants have a strong case on merits and accordingly stay the pre-deposit. They have not pleaded for any undue hardship and hence no orders are passed on the same. List the matter for final hearing on 14th October, 2019.

Summary

Issues:
1. Allegation of contravention of Section 8(1) of FERA, 1973 for acquiring and transferring foreign exchange without RBI permission.
2. Charge under Section 68(1) of FERA, 1973 against Directors.
3. Allegations of round tripping of funds involving offshore company M/s. THL.
4. Lack of prima facie evidence to support charges.

Analysis:

Issue 1: The appellants filed four appeals against the impugned order dated 03.08.2004, alleging contravention of Section 8(1) of FERA, 1973 for acquiring and transferring foreign exchange amounting to ?208 crores without RBI permission. Stay petitions are pending, and both parties presented arguments on the stay petition.

Issue 2: The counsel for the appellants argued that the case was based on allegations against M/s. THL, an offshore company, and not against the noticees. They contended that holding the appellant company and its Directors liable under FERA was illegal due to the lack of proceedings against M/s. THL. The respondents, however, claimed it was a case of round tripping of funds involving investments between M/s. Sterlite Industries (India) Limited and M/s. THL, Mauritius, supported by common directors between the companies.

Issue 3: The core issue revolved around the source of funds invested by M/s. THL in Indian companies and the alleged round tripping of funds. The lack of conclusive evidence to prove the charges was highlighted, with the adjudicating authority relying on common directors and transactions between the companies. The tribunal found no prima facie evidence to support the allegations, indicating that detailed examination would be necessary during the final hearing.

Issue 4: Despite the allegations of round tripping and common directorship, the tribunal noted the absence of prima facie evidence to conclusively prove the charges. The tribunal acknowledged the need for further examination of details regarding the source of funds and common interests during the final hearing. Consequently, the tribunal granted a stay on the pre-deposit, recognizing the appellants' strong case on merits and scheduled the matter for final hearing on 14th October, 2019.