2023 (7) TMI 1477 - AT - FEMA

Offence under FEMA 1999 - as alleged that for 12 outward remittances sent abroad, no Exchange Control Copy of the Bills of Entry had been submitted and the said Foreign Currency had not been surrendered to the Authorised Dealer - four individual appellants were charged as Director of the Company for aforementioned contraventions un/s 42(1) of FEMA - HELD THAT - The contravention of the provisions of Section 10(6) r/w 10 (5) of FEMA further r/w Regulation 6(1) of Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations 2000 by M/s. Akzo Nobel India Ltd. earlier known as M/s. ICI India Ltd. are established. In so far as the three Directors viz Sarv/Shri Nihal Kaviratne, Amit Jain Sanjiv Mishra are concerned the Learned Counsel for the Appellants has submitted Form 32 under the Companies Act which clearly show their appointments have been made in 2009 2010 that is much after the impugned transactions had occurred. Form 32 in the case of Shri R. Gopalakrishnan shows that he vacated office as an Additional Director and reappointed as a Director w.e.f. 22-7-1999. In the appeal, pleading has been made that Shri R. Gopalakrishnan was non-executive and independent Director who was not involved in the day to day affairs of the Company. The Adjudicating Authority has acknowledged that the Show Cause Notice has failed to spell out clearly the role of the Directors. Therefore, the aforementioned charges established for the Company fail to hold good under section 42 of FEMA 1999 against the aforementioned four Directors of the Company. While the charges against the Appellant Company stand established, in view of the fact that the Company has been making regular imports of substantial amounts and it is only in miniscule percentage of cases that the Company failed to submit proof of imports against 10 remittances, in the interest of justice the penalty under section 13(1) of FEMA 1999 is reduced to Rs. 5,00,000/- (Rupees Five Lakhs Only). The amount already paid by the Appellant Company as pre-deposit of penalty vide demand draft dated 27-2-2018 is to be fully adjusted against the reduced penalty. Since, the charges under section 42 of FEMA 1999 do not hold good against the four aforementioned Directors of the Appellant Company, the penalty of Rs. 1,00,000/- imposed on each of them under the impugned Adjudication Order dated 30-1-2015 is quashed.

Summary

Issues Involved:

1. Alleged contravention of FEMA provisions by M/s. Akzo Nobel India Ltd. and its Directors.
2. Delay in issuing the Show Cause Notice and its impact on the proceedings.
3. Application of the principle of natural justice and mens rea in the imposition of penalties.
4. Validity of penalties imposed on the company and its directors.

Issue-Wise Detailed Analysis:

1. Alleged Contravention of FEMA Provisions:

The core issue involved the alleged contravention of Section 10(6) read with Section 10(5) of FEMA, along with Regulation 6(1) of the Foreign Exchange Management (Realization, Repatriation, and Surrender of Foreign Exchange) Regulations, 2000. The Enforcement Directorate charged M/s. Akzo Nobel India Ltd. for failing to submit Exchange Control Copies of Bills of Entry for 12 outward remittances totaling Rs. 2,39,90,081.68. The Adjudicating Authority found the company guilty for 10 out of the 12 remittances, imposing a penalty of Rs. 25,00,000/-. The Directors were charged under Section 42(1) of FEMA for their roles in these contraventions.

2. Delay in Issuing the Show Cause Notice:

The appellants argued that the Show Cause Notice was issued after an unexplained delay of 12 years from the initial detection, violating principles of natural justice. However, the Tribunal noted that the Enforcement Directorate initiated inquiries promptly upon receiving information from the RBI in 2002, with directives issued in December 2002, April 2003, and July 2012, which went unanswered by the appellants. The Tribunal found that the appellants' failure to respond to these directives weakened their defense of procedural delay.

3. Principle of Natural Justice and Mens Rea:

The appellants contended that the penalties were unjust due to the absence of mens rea, which they argued was necessary for imposing penalties in quasi-criminal proceedings. The Tribunal, referencing the Supreme Court's decision in SEBI v. Shriram Mutual Fund, clarified that mens rea is not required for imposing penalties under Section 13 of FEMA, as the contraventions are civil obligations. The Tribunal emphasized that the statutory language does not necessitate intention for penalization.

4. Validity of Penalties on the Company and Directors:

The Tribunal acknowledged the company's failure to submit documentary evidence for the remittances but considered the company's history of substantial imports. Consequently, the penalty on the company was reduced to Rs. 5,00,000/-, with the pre-deposit amount adjusted against this reduced penalty. For the Directors, the Tribunal found that the Show Cause Notice did not clearly outline their roles, and three directors were appointed after the transactions occurred. As such, the penalties imposed on the directors were quashed.

In conclusion, the appeals were partly allowed, with the penalty on the company reduced and the penalties on the directors quashed. The Tribunal's decision emphasized adherence to procedural fairness while recognizing the civil nature of FEMA contraventions.