2024 (12) TMI 1310 - AT - FEMA

Contravention of the provisions of section 9(1)(e) along with 64 to of FERA - penalty imposed - Allahabad Bank opened a current account in the name of a non-resident company and sums were placed to the credit of the said non-resident company in form of deposits in the said current account, allegedly in contravention of section 9(1)(e) - HELD THAT - It was the appellant Bank which was holding the permission/license under the Act subject to compliance with the foreign exchange law and rules and regulations framed thereunder. The same having been contravened, the appellant bank would be deemed to have contravened such provision. On the other hand, contrary to the submission made by the learned counsel for the appellant, the appellant cannot be said to have abetted the contravention because the allegation of abetment can arise only against a person other than the one who was holding a license or permission. In this case the Bank itself was holding such license/permission and would be deemed to have contravened the provision. No merit in the contention of the learned counsel for the appellant that at best the appellant Bank could have been held liable for abetment . As a result of the deeming provision of Section 49, the appellant Bank had clearly contravened the provisions of FERA, 1999 and rendered itself liable for imposition of penalty. That having been said, I also find certain mitigating factors in favour of the Bank. deliberate mala fides have also not been alleged in the present case against the Bank. There is little doubt that the orders of both the authorities below are in the nature of ex parte order. No proof has been placed on record by the respondents that the call notices referred to in the impugned order were duly served on the appellant and were wantonly ignored. As regards the KYC norms, considering the period of time the matter relates to, namely, the early 1990s, it would not be wrong to say that the awareness regarding the same at that time was considerably less than what it is today, the requirements were much less stringent and the enforcement thereof even less so. Ends of justice would be met if the penalty imposed upon the appellant Bank is substantially reduced to Rs. 5,00,000/-. It is ordered accordingly.

Summary

Issues Involved:

1. Alleged contravention of Section 9(1)(e) of the Foreign Exchange Regulation Act, 1973 (FERA) by the appellant bank.
2. The question of abetment under Section 49 of FERA.
3. Procedural lapses and the opportunity for defense provided to the appellant bank.
4. Determination of appropriate penalty for the contravention.

Issue-wise Detailed Analysis:

1. Alleged Contravention of Section 9(1)(e) of FERA:

The primary issue in this case revolves around the alleged contravention of Section 9(1)(e) of FERA by the appellant bank. The bank opened a current account for a non-resident company, M/s Mapleleaf Trading Company Ltd., without the requisite permission from the Reserve Bank of India (RBI). The adjudicating authority found that the bank placed sums to the credit of the non-resident company, thereby contravening FERA provisions. The appellant bank argued that it did not place any sum to the credit of the non-resident company; rather, the account opener did. However, the tribunal noted that the provision primarily targets third parties who place sums to the credit of non-residents, not the banks facilitating such transactions.

2. Question of Abetment under Section 49 of FERA:

The appellant bank contended that if any contravention was found, it should be under Section 49 for abetment, not direct contravention. Section 49 of FERA deals with abetment and contravention of conditions attached to permissions or licenses. The tribunal clarified that the bank, as the holder of the permission/license, would be deemed to have contravened the provision directly, not as an abettor. The allegation of abetment applies to parties other than the license/permission holder, thus dismissing the bank's contention of abetment.

3. Procedural Lapses and Opportunity for Defense:

The appellant bank argued that it was not given a fair opportunity to defend itself, as the proceedings were conducted ex parte. The tribunal acknowledged that the orders from the authorities below were ex parte and noted the absence of proof regarding the service of call notices to the bank. The tribunal considered the bank's claim that it had informed the RBI and the Enforcement Directorate (ED) when the issue came to light, indicating a lack of deliberate malafide intent. The tribunal also took into account the less stringent KYC norms during the early 1990s.

4. Determination of Appropriate Penalty:

The tribunal found that while the bank had contravened FERA provisions, certain mitigating factors warranted a reduction in the penalty. The bank had itself brought the matter to the attention of the RBI and ED, and there was no allegation of deliberate malafide intent. Considering these factors, along with the bank's status as a public sector institution, the tribunal reduced the penalty from Rs. 50 lakhs to Rs. 5 lakhs. This decision aimed to balance the enforcement of FERA provisions with the recognition of mitigating circumstances.

Conclusion:

The tribunal upheld the finding of contravention by the appellant bank under Section 9(1)(e) of FERA but reduced the penalty in light of mitigating factors and procedural considerations. The appeal was disposed of with a substantial reduction in the penalty, emphasizing the importance of compliance with foreign exchange regulations while acknowledging the specific circumstances of the case.