2013 (11) TMI 1814 - AT - FEMA

Summary

Issues Involved:

1. Application for stay and waiver of pre-deposit of penalty.
2. Establishing a prima facie case by the appellant.
3. Determining undue hardship due to penalty deposit.
4. Safeguarding the realization of penalty.

Detailed Analysis:

1. Application for Stay and Waiver of Pre-deposit of Penalty:

The appellant filed an application seeking a stay and waiver of the pre-deposit of a penalty imposed for alleged contraventions under the Foreign Exchange Management Act, 1999 (FEMA). The penalty was levied for receiving funds in India without the permission of the Reserve Bank of India, which contravened Section 3(c) of FEMA. The appellant argued for a waiver based on the second proviso to sub-section (1) of Section 19 of FEMA, which allows the Appellate Tribunal to dispense with the deposit if it causes undue hardship, subject to conditions to safeguard penalty realization.

2. Establishing a Prima Facie Case:

The appellant contended that the adjudicating officer did not consider the defense presented in response to the show-cause notice. The appellant claimed that statements recorded did not identify him, and the evidence was insufficient to prove the allegations. The appellant asserted that the statements were obtained under duress and lacked corroboration. The appellant also argued that the seized amount was accounted for and belonged to a relative, with no investigation conducted to verify this claim. The appellant's request for cross-examination of the enforcement officer was denied, violating natural justice principles. The tribunal noted that while a prima facie case seemed plausible, a detailed examination would occur during the final hearing.

3. Determining Undue Hardship Due to Penalty Deposit:

The appellant argued that the financial condition was weak, residing in a rented house and relying on community support for sustenance. The appellant submitted an affidavit detailing the lack of income, property, and financial resources, asserting that the penalty deposit would cause undue hardship. The tribunal referred to Supreme Court judgments interpreting "undue hardship" as excessive hardship that deprives a person of basic life necessities. The tribunal found the appellant's financial status credible, as the respondent's report lacked substantial evidence to refute the appellant's claims. Thus, the tribunal concluded that the penalty deposit would indeed cause undue hardship.

4. Safeguarding the Realization of Penalty:

To balance the waiver of pre-deposit with safeguarding penalty realization, the tribunal imposed a condition requiring the appellant to provide a bank guarantee equivalent to the penalty amount. This condition aimed to secure the penalty's realization while granting relief from immediate financial burden. The tribunal directed the appellant to furnish the bank guarantee within 45 days, warning that failure to comply would result in dismissal of the appeal. The tribunal emphasized that this measure was necessary due to allegations of the appellant's involvement in hawala activities.

In conclusion, the tribunal granted the waiver of pre-deposit due to undue hardship but required a bank guarantee to ensure penalty realization, balancing the appellant's financial constraints with the enforcement of legal obligations.