2023 (4) TMI 1360 - AT - FEMA

Offence u/s 9(1)(c) of FERA - amount received from the NRIs by the Noticees (the Appellants here-in), as share application money, no share was allotted to them and the said amount continued under the head Share Application Money in the records of the Noticee Company - as pleaded that shares were issued to the NRIs who were family friends of the promotee. He could not produce the documents with regard to allotment of shares to the NRIs because of fire in his office and lock-out of his factory. HELD THAT - As there is nothing to show that the Appellant made an admission either during the investigation or subsequently of existence of a debt and of a jural relationship of creditor and debtor between the Company and the NRIs. To acknowledge a debt, the Company/ Promoter should have issued an acknowledgement admitting in writing that there is a debt owed by the Appellant. It is important to note that section 9(1)(c) FERA requires draw, issue or negotiate any bill of exchange or promissory note or acknowledge of debt. Reading of the Judgment Supra and these wordings of the section it is inescapable not to infer that even acknowledge of debt requires an instrument. Even if for argument sake if it is taken that no instrument is required for acknowledging a debt the position is clarified by the Judgment which cites Swaminathan Odayar v. Subbarama Aiyar 1926 (9) TMI 2 - MADRAS HIGH COURT in which as held that an acknowledgment need not be express but may be implied from facts and circumstances under which a statement in a deposition was made but it cannot be implied as a matter of law. In the present case there is no mention of a deposition by the Appellants of acknowledging a debt. In fact right from the beginning they have denied owing a debt to the NRIs from where there was in-flow of share capital money. They have all through maintained the inflow of funds was for share capital. It also does not imply that since the Appellants could not produce documents for issuance of shares the money received by them becomes debt either as a matter of implication or that of Law. The Respondents have also failed to produce any evidence documentary or otherwise to show how acknowledge of debt got created. The appeals are allowed and the impugned Adjudication Order is set aside. The pre-deposit of penalty amount made by the two Appellants are to be refunded to them by the Respondent on expiry of the period of appeal against this Order

Summary

Issues:
1. Contravention of section 9(1)(c) r/w section 68(1) of FERA.
2. Delay in filing the Appeal.
3. Pre-deposit of penalty.
4. Allegation of not issuing shares against received money.
5. Interpretation of "acknowledge any debt" under section 9(1)(c) FERA.

Analysis:
1. The judgment involved two appeals filed against an Adjudication Order for contravention of FERA. The Adjudication Order found that no shares were allotted against the share application money received, leading to the establishment of the alleged charge under section 9(1)(c) of FERA. A penalty was imposed on the appellants, with charges dropped against two other noticees not involved in the company's affairs.

2. The Tribunal condoned the delay in filing the appeal and ordered a pre-deposit of 10% of the penalty amount, which the appellants complied with. The defense argued that shares were issued to NRIs who later gifted them to the promoters due to company closure, denying any debt acknowledgment. The respondent contended that no evidence of share issuance or money return was provided, creating a debt for persons outside India, as per FERA.

3. The Tribunal analyzed the arguments and evidence presented. While the company received share capital from NRIs, the lack of documentation supporting share issuance led to the finding that the amount remained as share application money, establishing the contravention under section 9(1)(c) of FERA. The significance of "acknowledge any debt" was examined, citing a Supreme Court judgment for clarification.

4. The judgment highlighted the requirements for a valid acknowledgment of debt under the Limitation Act, emphasizing the need for a written admission of debt to create a jural relationship. It was noted that no such acknowledgment was made by the appellants, and the lack of evidence or deposition on debt acknowledgment further supported the decision to set aside the Adjudication Order.

5. Consequently, the appeals were allowed, and the Adjudication Order was set aside. The pre-deposit penalty amounts were to be refunded to the appellants. The judgment emphasized the necessity of a clear acknowledgment of debt to establish a contravention under section 9(1)(c) of FERA, which was lacking in this case.