2008 (10) TMI 736 - AT - FEMA

Summary

Issues Involved:
1. Compliance with Reserve Bank of India (RBI) conditions.
2. Alleged contravention of Foreign Exchange Regulation Act (FERA) provisions.
3. Validity of the Show Cause Notice (SCN).
4. Mens rea and technical violation.
5. Quantum of penalty.

Issue-wise Detailed Analysis:

1. Compliance with Reserve Bank of India (RBI) conditions:
The appellant company, M/s. Cox & Kings (India) Ltd., was alleged to have failed to comply with the conditions laid down in the license issued by the RBI while releasing foreign exchange. The specific condition under scrutiny was Condition no. (iv) of para 11 of the FLM, which mandates that the sale of foreign exchange should be made only on personal application and identification of the traveler. The appellant company released foreign exchange in cash and travelers cheques without obtaining applications or identification from the passengers, which was a clear violation of the RBI guidelines.

2. Alleged contravention of Foreign Exchange Regulation Act (FERA) provisions:
The appellant was found guilty of contravening Sections 7 and 49 of FERA, 1973, read with paragraph 8A 1 (ii) item XV of Annexure 1 to Chapter 8 of ECM, and paragraph 11 of the FLM read with Section 73 (3) of FERA 1973. The contravention involved releasing foreign exchange without proper documentation and identification, which was admitted by the company's manager and financial controller during the investigation. The preparation or attempt to commit contravention of FERA provisions is punishable under Section 64 of the Act.

3. Validity of the Show Cause Notice (SCN):
The appellant argued that the SCN did not explicitly mention "preparation" or "attempt" to commit the offense. However, the tribunal held that the language of the SCN was sufficiently clear, and any omission did not mislead the appellant or result in a failure of justice. The Supreme Court's precedent in Virendra Kumar v. State of U.P. was cited to support that an error in framing the charge does not vitiate the trial if the accused was aware of the basic ingredients of the offense and had a fair chance to defend themselves.

4. Mens rea and technical violation:
The appellant contended that the violation was technical and lacked mens rea. However, the tribunal rejected this argument, stating that regulatory contraventions under FERA, 1973, impose strict liability, and mens rea is presumed. The Supreme Court's judgment in The Chairman, SEBI v. Shriram Mutual Fund & Anr. was cited, which held that penalty is attracted as soon as the contravention of the statutory obligation is established, irrespective of the intention behind the violation.

5. Quantum of penalty:
The tribunal found the penalty of Rs. 10,000/- imposed by the Adjudicating Officer to be commensurate with the violations. The penalty was deemed necessary to create a deterrent effect against the violation of regulatory statutes. The appellant's argument that the penalty was harsh and excessive was dismissed, and the tribunal upheld the penalty as appropriate and justified.

Conclusion:
The tribunal concluded that the appellant company had rightly been held guilty by the Adjudicating Officer for contravening the provisions of FERA and the RBI guidelines. The penalty imposed was found to be appropriate and necessary to deter future violations. The appeal was dismissed, and the penalty amount already deposited by the appellant was ordered to be appropriated towards the penalty.