2024 (6) TMI 629 - AT - FEMA

Contraventions of FERA - Appellant issued instructions to Indian Banks for crediting accounts of non-residents - Appellant, which had entered into various agency agreements with Authorized Dealer banks appointed by the RBI to open, maintain and effect transactions from the Vostro Accounts of the Appellant - Tribunal directed the Appellant to furnish unconditional bank guarantee of total penalty amount in the favor of Enforcement Directorate to meet the statutory requirement u/s 52 (2) of FERA 1973 of waiver of the pre-deposit of the penalty amount - HELD THAT - Appellant cannot get away by an explanation that it was not its business or responsibility to do verification of any kind for such transactions because it was the instructions of the Appellant which initiated the transactions which were prohibited under the Agreement and Arrangements. Even when the matter was taken up with the Appellant by Grindlays Bank and RBI, there is nothing on record to show that any enquiry was taken up by the Appellant. Its response was to deny its responsibility. Such conduct on the part of the Appellant not only reveals instigation but that too intentionally so as to engage with the ADs to indulge in transactions which were prohibited under the Agreement and Arrangements, resulting in contraventions of the provisions of FERA 1973. It is from the facts and circumstances of a case that the intention, instigation and engagement are to be ascertained. The facts of the present case speak for themselves whereby the obligations arising from the Agreement and Arrangements were completely ignored by the Appellant. FERA 1973 provided for a regulatory mechanism for certain payments, dealings in foreign exchange and security, transactions indirectly affecting foreign exchange and the import and export of currency for the conservation of the foreign exchange resources of the country and the proper utilization thereof in the interest of the economic development of the country. Section 59 of FERA1973 provided for presumption of culpable mental state in any prosecution for any offence under the Act which requires a culpable mental state on the part of the accused, unless the accused proved the fact that he had no such mental state with respect to the charge against a particular offence. Sub-Section 3 of that Section makes such presumption applicable to proceeding before an Adjudicating Officer. The circumstances and the evidence in the present case reverse the burden on to the Appellant which it has failed to discharge. Therefore, the charge of the abetment against the Appellant stands established as it contravened Section 64 (2) read with Section 6 (4), Section 6 (5) and Section 49 (i) (a) of FERA, 1973. We would consider the argument on the quantum of penalty imposed on the Appellant. It is submitted that the amount of penalty is disproportionately higher for the charge of abetment alleged against the Appellant. Appellant has even argued against the allegation of abetment which however has not been accepted by the Tribunal. Appellant has prayed for making amount of penalty commensurate to the charge of contravention and abetment therein. The prayer has been opposed by Respondent. In the facts and the circumstances of the case we do find that that amount of penalty is disproportionate to the allegation made against the Appellant. We accordingly substitute the penalty which would meet the ends of justice.

Issues Involved:
1. Contravention of FERA 1973.
2. Applicability of previous Tribunal orders.
3. Validity of Banking Agreement between BFEA and RBI.
4. Responsibility and due diligence of BFEA.
5. Definition and charge of abetment under FERA 1973.
6. Quantum of penalty.

Summary:

1. Contravention of FERA 1973:
The Appellant was penalized Rs. 7,67,45,000/- for contravening Section 64 (2) read with Section 6 (4), Section 6 (5), and Section 49 (i) (a) of FERA 1973. The transactions involved crediting sums to non-resident convertible rupee accounts from non-convertible rupee accounts held by the Appellant in Indian banks, without RBI's permission. The Tribunal found that such transactions were not permissible under the Indo-USSR Trade Agreement and the ensuing Inter-Bank Agreement.

2. Applicability of previous Tribunal orders:
The Appellant argued that previous Tribunal orders dated 20.09.2019, which set aside penalties against ANZ Grindlays Bank and Canara Bank for similar transactions, should apply. However, the Tribunal noted that these orders are pending before the Bombay High Court and have not attained finality. Therefore, they do not have a binding impact on the present Appeal.

3. Validity of Banking Agreement between BFEA and RBI:
The Appellant contended that the transactions were in accordance with a Banking Agreement between BFEA and RBI, which specified payments in non-convertible Indian Rupees. However, the Tribunal found that the payments were made in convertible currency to non-residents, which was outside the scope of the Agreement.

4. Responsibility and due diligence of BFEA:
The Appellant argued that it was merely following instructions from its clients in Russia and had no duty to verify the correctness of these instructions. The Tribunal held that the Appellant had the onus to ensure payments were made in non-convertible Indian Rupees between India and USSR, as per the Agreements. Failure to do so constituted a breach of responsibility.

5. Definition and charge of abetment under FERA 1973:
The Appellant argued that abetment under FERA 1973 should be understood as defined u/s 107 of IPC, requiring mens rea and meeting of minds. The Tribunal found that the Appellant's repeated instructions to transfer funds to convertible rupee accounts of non-residents, despite knowing the terms of the Agreement, constituted instigation and engagement in prohibited transactions. Thus, the charge of abetment was established.

6. Quantum of penalty:
The Appellant contended that the penalty was disproportionately high. The Tribunal agreed and reduced the penalty from Rs. 7,67,45,000/- to Rs. 75,00,000/-, finding it more commensurate with the charge of abetment.

Conclusion:
The Tribunal modified the Impugned Order by reducing the penalty to Rs. 75,00,000/-. The Appeal was partly allowed and disposed of along with the applications.

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