2024 (8) TMI 664 - AT - FEMA

Offence u/s 5 of FEMA - foreign exchange totaling US 50,000/- in Travelers Cheques TCs found for the so called business travel to Sri Lanka without the necessary permissions - HELD THAT Admittedly, the proposal for seven days business promotion trip to Sri Lanka by appellant Faiyaz Shamim was planned at the instance of Dinesh C. Rawat. Mr. Faiyaz Shamim was working as Export Executive and Sanjay Mukherjee was working as Finance Manager in M/s Dinmay Exim Avenue Pvt Ltd. It is also an admitted fact that appellant Faiyaz Shamim was not instrumental in applying for foreign exchange, as the said work was managed by Miss Roshni Rawat and Shri Dinesh Chandra Rawat Directors of the company, who issued the application for US 25,000 each on company s pad in favour of Mr. Faiyaz Shamim to two different authorized money changers namely M/s VKC Credit Forex Pvt Ltd. and M/s RR Sen Bros. Pvt Ltd. Shri D. C. Rawat and his daughter Miss Roshni Rawat jointly signed the cheque no. 345852 345853 dated 13. 09. 2003 in the favour of said two authorized money changers respectively. Even if it is presumed that Shri Faiyaz Shamim was not aware of this fact that foreign exchange is being procured by his company, without obtaining prior permission of RBI, even then, he is not entitled to any benefit, as he was not carrying any permission of RBI at the time of his travelling to Sri Lanka when he was intercepted by Custom Authorities at the Airport. He may be ignorant of the factual position, but ignorance of law is no excuse, since he was not carrying any permission of RBI for carrying additional US 25,000. It was the duty on the part of appellant Faiyaz Shamim to verify this fact before obtaining the additional US of 25,000 and to request for RBI permission before carrying the same. Miss Roshni Rawat and Shri Dinesh Chandra Rawat have already admitted their fault for committing this technical violation by not obtaining the prior permission of RBI. Case of appellant Sanjay Mukherjee, who was working as Finance Manger in the said company - Being Finance Manager, it cannot be presumed that he was not aware about the drawl of additional US 25,000 from another FFMC namely M/s RR Sen Bros (P) Ltd. It is apparent that he intentionally not associated himself for drawing the additional US 25,000, as he was conscious of the fact for contravention of the provisions of FEMA without permission of RBI to hand over the same to Faiyaz Shamim. Even otherwise, being Finance Manager of M/s Dinmay Exim Avenue Pvt Ltd. , he is vicariously liable for the contravention as above. Therefore, both the appeals are liable to be dismissed being devoid of any merits. However, seeing the fact that the penalty of Rs. 10,00,000/- imposed upon the Manging Director, Dinesh C. Rawat is reduced to Rs. 2,00,000/-, the penalty imposed upon the present appellants also needs to be reduced, seeing their minor role and being the employees in the said company. Accordingly, in the interest of justice, the penalty of Rs. 1,00,000/- imposed upon the present appellants is reduced to Rs. 50,000/-. The present appeals are hereby partly allowed, and thereby, the impugned review orders dated 08. 03. 2018; Order dated 13. 01. 2017 passed in Appeal by Ld. Special Director (Appeals); are hereby modified to the extent that both the appellants are liable to pay penalty of Rs. 50,000/- each. Perusal of record reveals that both the appellants have already pre-deposited the penalty of Rs. 50,000/- each before admission of this appeal at the time of allowing their applications for waive of pre-deposit of application.

Summary

Issues Involved:
1. Contravention of Section 5 of the Foreign Exchange Management Act, 1999.
2. Violation of Rule 5 of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
3. Non-compliance with Section 10(6) of FEMA, 1999.
4. Jurisdiction and authority of Show Cause Notices (SCNs) issued.
5. Liability of company executives versus the company itself.
6. Penalty imposition and its appropriateness.

Detailed Analysis:

1. Contravention of Section 5 of FEMA, 1999:
The appellants were found to have contravened Section 5 of FEMA, 1999, which allows the sale or drawal of foreign exchange for current account transactions under prescribed conditions. The Adjudicating Authority concluded that the appellants, through joint efforts, acquired foreign exchange totaling US$ 50,000 in Travelers Cheques (TCs) for business travel to Sri Lanka without the necessary permissions, thus violating Section 5 of FEMA, 1999.

2. Violation of Rule 5 of Foreign Exchange Management (Current Account Transactions) Rules, 2000:
Rule 5 states that no person shall draw foreign exchange for transactions included in Schedule III without prior approval of the Reserve Bank of India (RBI). The appellants drew US$ 50,000 in TCs from two different dealers without obtaining the necessary approval from RBI, thereby violating Rule 5.

3. Non-compliance with Section 10(6) of FEMA, 1999:
Section 10(6) stipulates that any person who uses acquired foreign exchange for purposes other than those declared or fails to surrender it within the specified period commits a violation. The appellants were found to have used the foreign exchange for purposes other than those declared in their application, and failed to surrender the unspent amount, thus contravening Section 10(6).

4. Jurisdiction and Authority of SCNs Issued:
The appellants argued that the SCNs were issued without authority as the company was not made a party to the SCNs. They contended that the charges against the Managing Director and other executives were misconceived and not tenable without framing any charge against the company itself.

5. Liability of Company Executives versus the Company Itself:
The appellants argued that the liability for the contravention should lie with the company and not the individual executives. They cited precedents where penalties were not imposed on employees as they acted under the instructions of their employer. The Tribunal, however, held that the executives were aware of the contraventions and were responsible for ensuring compliance with FEMA regulations.

6. Penalty Imposition and Its Appropriateness:
The Adjudicating Authority initially imposed a penalty of Rs. 1,00,000 on the appellants. The Tribunal, considering the minor role of the appellants and their status as employees, reduced the penalty to Rs. 50,000 each. The Tribunal noted that the Managing Director's penalty was also reduced, and thus, it was just to reduce the penalty for the appellants.

Conclusion:
The Tribunal partly allowed the appeals, modifying the impugned review orders to reduce the penalty from Rs. 1,00,000 to Rs. 50,000 for each appellant. It was noted that the appellants had already pre-deposited the penalty amount, and thus, no further payment was required. The judgment was pronounced on July 8, 2024.