2024 (12) TMI 1312 - AT - FEMA

Contravention of Section 8(1) - transferring foreign exchange equivalent to Rs. 208 crores without previous, general or special permission of the Reserve Bank of India - appellants, Shri Anil Agarwal, Navin Agarwal and D.P. Agarwal were charged for violation of Section 68 of the FERA, 1973 - HELD THAT - The main argument of the appellants of putting burden of proof on the respondents even though they discharged their part of burden, cannot be accepted. The appellant Shri D.P. Agarwal was holding position in M/s Twinstar and was summoned but failed to appear and produce the documents. He did not respond to the summons. It cannot be to his benefit or given premium to non-response. Rather, adverse inference can safely be drawn against the appellant. In the background aforesaid and in the light of the discussion made above, we are unable to accept the argument raised by the counsel for the appellants and otherwise find that against an amount of Rs. 208 Crores, penalty of only Rs. 20 Crores has been imposed on the company and Rs. 5 Crores each on the individuals holding the position in the company. Accordingly, finding no reason to cause interference in the impugned order appeals would fail and are dismissed.

Issues Involved:

1. Alleged contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973.
2. Alleged contravention of Section 68 of the Foreign Exchange Regulation Act, 1973.
3. Burden of proof regarding the source of funds for investment.
4. Presumption of routing funds through an offshore company without permission from the Reserve Bank of India (RBI).

Issue-wise Detailed Analysis:

1. Alleged contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973:

The appellants were charged with contravening Section 8(1) of the Act of 1973 by transferring foreign exchange equivalent to Rs. 208 crores without the prior permission of the Reserve Bank of India. The adjudicating authority imposed a penalty of Rs. 20 crores on the appellant company and Rs. 5 crores each on the individual directors for this alleged violation. The investigation revealed that M/s Twinstar, an offshore company with a paid-up capital of USD 100, invested Rs. 208 crores in the appellant company and its group entities. The tribunal noted that the investment was made with RBI approval, but the source of the funds remained undisclosed, leading to the presumption of contravention.

2. Alleged contravention of Section 68 of the Foreign Exchange Regulation Act, 1973:

The individual appellants, namely D.P. Agarwal, Navin Agarwal, and Anil Agarwal, were charged under Section 68 for their role in the alleged contravention. The tribunal found that despite being summoned, D.P. Agarwal, a director in both the appellant company and M/s Twinstar, failed to appear and disclose the source of funds. This non-compliance contributed to the tribunal's decision to uphold the penalties imposed on the appellants.

3. Burden of proof regarding the source of funds for investment:

The tribunal emphasized the issue of the burden of proof, which was a critical aspect of the case. The appellants argued that the burden was on the respondents to prove the contravention, while the respondents contended that the appellants failed to demonstrate the legitimate source of the Rs. 208 crores invested by M/s Twinstar. The tribunal referred to legal precedents, highlighting that once the respondents presented sufficient circumstantial evidence, the onus shifted to the appellants to provide material evidence, which they failed to do.

4. Presumption of routing funds through an offshore company without permission from the Reserve Bank of India (RBI):

The tribunal noted that the entire case against the appellants was based on the presumption that they routed Rs. 208 crores through M/s Twinstar to bring it back as investment in the appellant company. The respondents argued that M/s Twinstar, with its minimal capital, had no means to invest such a substantial amount, indicating that the funds were initially transferred by the appellants. Despite the opportunity to prove otherwise, the appellants did not produce any documents to establish the source of the funds. The tribunal concluded that the presumption of contravention was justified due to the appellants' failure to discharge their burden of proof.

In conclusion, the tribunal dismissed the appeals, upholding the penalties imposed on the company and its directors. The decision was based on the appellants' inability to provide evidence disproving the allegations and the adverse inference drawn from their non-compliance with summonses and failure to disclose the source of funds.

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