2009 (6) TMI 1030 - AT - FEMA

Issues Involved:

1. Contravention of Section 9(1)(b) and 9(1)(d) of the Foreign Exchange Regulation Act, 1973.
2. Abetment under Section 64(2) of the Foreign Exchange Regulation Act, 1973.
3. Compliance with conditions of permissions granted by the RBI as per Section 49(1)(a) of the Foreign Exchange Regulation Act, 1973.
4. Validity and enforcement of the penalty imposed by the Special Director, Enforcement Directorate.

Issue-wise Detailed Analysis:

1. Contravention of Section 9(1)(b) and 9(1)(d) of the Foreign Exchange Regulation Act, 1973:

The Tribunal examined the provisions of Section 9, which restricts payments to and from non-residents without RBI permission. The appellants, M/s. STAR, M/s. News Television, and M/s. Credit, were found to have violated these provisions. Specifically, M/s. STAR, a non-resident, transferred Rs. 81026331 to M/s. News Television, which was used to pay advertising agents in India. The Tribunal emphasized that Section 9 applies to any person in India or resident in India, including non-residents if the violation occurs within Indian territory. Consequently, the appellants' actions were deemed to contravene Section 9(1)(b) and 9(1)(d).

2. Abetment under Section 64(2) of the Foreign Exchange Regulation Act, 1973:

The Tribunal addressed the issue of abetment, noting that M/s. Credit, as a banker, facilitated the opening of the NRO account and transferred funds to M/s. News Television. The Tribunal referred to the definition of abetment under Section 107 of the Indian Penal Code, highlighting intentional aiding or instigation. It concluded that M/s. Credit's actions amounted to intentional aiding, thus constituting abetment under Section 64(2) of the Foreign Exchange Regulation Act, 1973.

3. Compliance with conditions of permissions granted by the RBI as per Section 49(1)(a) of the Foreign Exchange Regulation Act, 1973:

The Tribunal analyzed the conditions set by the RBI in its permission letters dated 15.12.1993 and 25.2.1994. M/s. STAR and M/s. Credit were found to have violated these conditions by transferring funds without specific RBI permission. The Tribunal applied Section 49(1)(a), which deems failure to comply with conditions of permissions as a contravention of the Act. It concluded that the appellants' actions violated the conditions of the RBI's permissions, thus contravening Section 9 of the Foreign Exchange Regulation Act, 1973.

4. Validity and enforcement of the penalty imposed by the Special Director, Enforcement Directorate:

The Tribunal upheld the penalties imposed by the Special Director, Enforcement Directorate, considering them neither excessive nor harsh. It rejected the appellants' arguments based on the absence of contumacious conduct, referring to the Supreme Court's judgment in Chairman, SEBI v. Sriram Mutual Fund, which emphasized mandatory penalties for contraventions of regulatory statutes. The Tribunal adopted a purposive approach to interpretation, aiming to fulfill the true purpose of the legislation. It concluded that the penalties were justified and directed the appellants to deposit their respective penalties within 7 days, failing which the Enforcement Directorate could recover the amounts, including through encashment of the unconditional bank guarantees.

Conclusion:

The Tribunal dismissed the appeals, affirming the penalties imposed by the Special Director, Enforcement Directorate, and emphasizing the importance of strict compliance with the Foreign Exchange Regulation Act, 1973, and the conditions of permissions granted by the RBI. The judgment underscores the applicability of Section 9 to both residents and non-residents within Indian territory and the significance of intentional aiding in constituting abetment under the Act.

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