2008 (8) TMI 1032 - AT - FEMA

Issues Involved:
1. Contravention of Section 29(1)(b) read with 49(1), 72(3), and 58 of the Foreign Exchange Regulation Act (FERA).
2. Non-compliance with Para 10C.21 of the Exchange Control Manual (ECM) of RBI.
3. Legality of increasing the penalty amount without an appeal or revision by the Enforcement Directorate.
4. Applicability of statutory directions and the interpretation of statutes.
5. Authority of the Tribunal to enhance penalties.

Issue-wise Detailed Analysis:

1. Contravention of Section 29(1)(b) read with 49(1), 72(3), and 58 of the Foreign Exchange Regulation Act (FERA):
The appellants were penalized for purchasing shares of Steel Authority of India without taking delivery, thus violating Section 29(1)(b) of FERA. The Tribunal noted that the appellant company, an Overseas Corporate Body registered in Mauritius, had purchased shares on credit without taking delivery, which contravened the conditions prescribed under Para 10C.21 of the ECM. Despite the appellants' argument that the broker failed to deliver the shares, the Tribunal held that the non-resident person (appellant company) failed to take delivery, thus violating the general condition under Para 10C.21(c)(v).

2. Non-compliance with Para 10C.21 of the Exchange Control Manual (ECM) of RBI:
The Tribunal emphasized that Para 10C.21(c)(v) of the ECM mandates that overseas persons must take delivery of the shares if purchased. The appellants argued that no specific period for delivery was prescribed and that the ECM did not contain statutory directions. However, the Tribunal rejected this argument, stating that a legal duty was created, and the reasonable time for performance of this duty could be inferred. The Tribunal also noted that the appellants failed to produce the RBI's approval, leading to an adverse inference against them.

3. Legality of increasing the penalty amount without an appeal or revision by the Enforcement Directorate:
The Tribunal addressed the argument that the penalty amount could not be increased in the absence of an appeal or revision by the Enforcement Directorate. The Tribunal held that it had the authority to suo moto examine the legality, propriety, and correctness of any adjudication order under Section 52(4) of the FERA. The Tribunal emphasized that undue sympathy in imposing inadequate penalties could undermine the economic well-being of the country and that the quantum of penalty must create a deterrent effect.

4. Applicability of statutory directions and the interpretation of statutes:
The Tribunal discussed the interpretation of statutes, emphasizing that the provisions of Section 29(1)(b) of FERA clearly prohibit the purchase of shares in India by any person residing outside India without RBI permission. The Tribunal noted that the appellants failed to produce the RBI's permission, and thus, the violation was clearly made out. The Tribunal also referred to various judgments to support the principle that statutory provisions should be interpreted plainly and unambiguously.

5. Authority of the Tribunal to enhance penalties:
The Tribunal referred to the definitions of "modify" in Black's Law Dictionary and Prem's Judicial Dictionary, concluding that it had the authority to increase the penalty even in the absence of an appeal or revision by the Enforcement Directorate. The Tribunal imposed a penalty of Rs. 2 crores each against the two appellants, which was roughly double the amount involved in the contravention. The Tribunal justified this increase to ensure that the penalty had a deterrent effect and to avoid perpetuating injustice.

Conclusion:
The appeals were dismissed, and the penalties against both appellants were increased to Rs. 2 crores each. The appellants were ordered to deposit the penalties within a week from the receipt of the order, failing which the Enforcement Directorate could recover the same in accordance with the law.

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