2023 (7) TMI 1474 - AT - FEMA

Adjudicating Authority taking the lenient view for the imposition of penalty - appeal for enhancement of penalty - contavention to file FC-GPR within 30 days of share issuance as they filed the same with delay of 2 days - Seeking enhancement of penalty under FEMA 1999 for contravention of regulations regarding foreign exchange management - whether the Adjudicating Authority was judicious in taking the lenient view for the imposition of penalty? - HELD THAT - On reading of Section 13(1) FEMA it is obvious that the maximum amount of penalty which can be imposed under the Section is three times the amount of contravention involved. From the language of the Section it is clear that the Section has not prescribed either a fixed amount of penalty or minimum amount of penalty. It therefore, follows that the amount of the penalty which is to be imposed by the Adjudicating Authority is a matter of discretion which, of course, is necessarily required to be exercised judiciously after taking into account the facts of the case and the evidence placed before him. The stand of the State in in State of M.P. v. Bharat Heavy Electricals 1997 (8) TMI 252 - SUPREME COUR conceded that the assessing authorities are not bound to levy fixed penalty equal to ten times the amount of entry tax. In fact, in the present case the statute (FEMA) itself provides for a penalty up to thrice the sum involved in such contravention and thereby gives explicit scope to the Adjudicating Authority to exercise his discretion, albeit judiciously, for imposition of penalty. The Adjudicating Authority has made a finding in the impugned Adjudication Order that the contraventions are technical in nature and keeping in view the nature of contraventions he has taken the lenient view in imposition of penalties. The reading of the Adjudication Order reflects judiciousness on the part of the Adjudicating Authority, in not having imposed penalty which is commensurate with the amount of FDI received, particularly so when the contraventions were technical in nature as the substantive provisions of the Regulations have been complied with even though with some delay. The Adjudicating Authority has imposed separate penalty for the respective delays involved in fulfilling each of the three compliances. In the given circumstances where the contraventions are not of substantive provisions the penalties imposed by the Adjudicating Authority meet the ends of justice. The order of the Adjudicating Authority cannot be interfered with. Therefore, the appeal fails and is dismissed.

Summary

Issues:
Appeal for enhancement of penalty under FEMA 1999 against M/s. OSR Infra Private Limited and its Director.

Detailed Analysis:

1. Background and Appeal Details:
The appeal was filed by the Union of India against the Adjudication Order passed by the Joint Director, Hyderabad Zonal Office, Enforcement Directorate, imposing penalties on M/s. OSR Infra Private Limited and its Director. The penalties were imposed for contraventions of FEMA 1999 and related regulations. The appeal sought an enhancement of the penalties based on the quantum of contravention involved.

2. Condonation of Delay:
The appellant filed an application for Condonation of Delay in filing the appeal, citing the Covid pandemic as a reason for the delay. The application was disposed of, allowing the appeal to proceed.

3. Arguments and Counter-arguments:
During the hearing, the appellant argued for higher penalties, emphasizing the correlation with the contravention's quantum. The respondent contended that the contraventions were technical and were eventually complied with, albeit with delays due to operational reasons and staff shortages. The Adjudicating Authority was said to have exercised discretion judiciously in imposing the penalties.

4. Review of Records and Contraventions:
The Tribunal reviewed the case records, including the Adjudication Order, and noted the contraventions by the respondents related to FDI reporting and share issuance timelines under FEMA regulations.

5. Adjudicating Authority's Lenient View:
The Adjudicating Authority upheld the charges but took a lenient view in imposing penalties, considering the technical nature of the contraventions and the eventual compliance by the respondents, albeit with delays.

6. Interpretation of FEMA Section 13(1):
The Tribunal analyzed Section 13(1) of FEMA, which allows penalties up to three times the contravention amount, emphasizing the discretionary nature of penalty imposition by the Adjudicating Authority based on the facts of the case.

7. Precedents and Judicial Discretion:
Citing legal precedents, including the State of M.P. v. Bharat Heavy Electricals case, the Tribunal emphasized the Adjudicating Authority's discretionary power in imposing penalties, especially in cases of technical breaches or bona fide beliefs.

8. Final Decision and Observations:
After considering the arguments, precedents, and the Adjudicating Authority's reasoning, the Tribunal concluded that the penalties imposed were justified, given the technical nature of the contraventions and the compliance eventually achieved by the respondents. The appeal was dismissed, upholding the Adjudication Order.

In conclusion, the Tribunal's decision highlighted the importance of judicious discretion in penalty imposition under FEMA regulations, especially in cases of technical contraventions where compliance is eventually achieved.