2009 (9) TMI 1085 - AT - FEMA

Summary

Issues Involved: Contravention of Section 10(4), 10(5) read with Section 42 of the Foreign Exchange Management Act (FEM Act) 1999; Validity of the adjudication orders; Requirement of due care and caution by authorized money changers; Applicability of the standard of care and caution; Legality of penalties imposed.

Issue-wise Detailed Analysis:

1. Contravention of Section 10(4), 10(5) read with Section 42 of the FEM Act 1999:
The appellants, licensed full-fledged money changers (FLM), were found guilty of contravening Section 10(4) and 10(5) read with Section 42 of the FEM Act 1999. The adjudicating authority held that the appellants released foreign currency to individuals sponsored by a non-existent firm, M/s. Leather Crafts and Goods Exports. The applications were signed by Manas Kumar Moitra, and the same individuals were sponsored multiple times within a short period, indicating a lack of due diligence by the appellants.

2. Validity of the Adjudication Orders:
The Tribunal initially affirmed the adjudication orders dated 15-12-2005, which were remanded back for reconsideration. However, the Madras High Court quashed the Tribunal's order and directed it to dispose of the appeals on merits. Upon review, the Tribunal found no merit in the appeals and upheld the adjudication orders, emphasizing the appellants' failure to act with due care and caution.

3. Requirement of Due Care and Caution by Authorized Money Changers:
The appellants argued that their possession of a valid RBI license negated any contravention of the FEM Act. However, the Tribunal emphasized that the license implicitly required the appellants to act with due care and caution. The Tribunal highlighted that the appellants failed to notice glaring discrepancies, such as the same person being sponsored twice within a short period and multiple sponsorships by the same firm within overlapping dates.

4. Applicability of the Standard of Care and Caution:
The Tribunal referred to various legal precedents to underline the expectation of a higher standard of care and caution from authorized dealers. The appellants, being experienced money changers, were expected to scrutinize transactions diligently to prevent fraud. The Tribunal cited the Bombay High Court's observation that the standard of care must be judged according to the capacity and intelligence of the person, and the Orissa High Court's ruling that higher standards are expected from authorized dealers.

5. Legality of Penalties Imposed:
The Tribunal found that the penalties imposed were not harsh or excessive. The appellants were held responsible for their conduct and the conduct of their company. The penalties were deemed appropriate given the appellants' failure to adhere to their legal duties. The Tribunal dismissed the appeals, affirming the adjudication orders and sustaining the penalties.

Conclusion:
The appeals were dismissed, and the adjudication orders were upheld. The appellants were found guilty of contravening Sections 10(4) and 10(5) read with Section 42 of the FEM Act 1999. The Tribunal emphasized the need for authorized dealers to act with due care and caution and upheld the penalties imposed, finding them neither harsh nor excessive. The pre-deposit amounts were ordered to be appropriated towards the penalties, with the remaining amounts to be deposited within one week.