2025 (1) TMI 897 - AT - FEMA

Offence under FERA - appellant company got involved in acquisition of foreign exchange and its borrowing without permission of Authorised Dealer or of the Reserve Bank of India - penalty imposed on contravention of section 8(1) - element of acquisition and transfer of the foreign exchange of US 28,26,433.26 coupled with the allegations of borrowing of foreign exchange amounting to US 3,33,025 and 7,068.38 HELD THAT - The draft of US 333025 and 3270.20 and 3798.18 were utilized for payment of customs duty. However, the earlier draft was received from M/s Tata Industries USA and other two drafts from M/s Tata Ltd. London and Sh. Raj Kadan of M/s Tata Inc. who played vital role in arranging the remittances. It is also a case that the appellant company acquired and transferred foreign exchange of US 28,26,433.26. The authority thus passed the impugned order holding the contravention. We do not find any error in findings and otherwise the judgment cited by the appellant would not support a case of civil nature but can be handful in prosecution or criminal case. In substance, we find contravention in Section 8(1) of the Act of 1973 for arranging and transferring foreign exchange. Penalty imposed on the appellant company u/s 8(1) of the Act of 1973 for acquiring and transferring of foreign exchange with separate penalty for violation of Section 8(1) of the Act of 1973 towards the borrowing of foreign exchange of US Dollars and Sterling Pounds - The appellant company has already deposited 25% of the penalty amount to satisfy the condition of pre-deposit. It was in pursuance to the order of the Calcutta High Court. We find this case to be old by more than 20 years and looking at all the facts, we find a case to make penalty proportionate. It is looking to appeal, evidence available on record and the peculiarity of the facts and thereby we cause interference in the penalty and reduce it to 25% of the amount of penalty imposed by the authority. The amount aforesaid has already been satisfied by the appellant company. Hence the present appeal is partly allowed and disposed of with the aforesaid. Separate Penalty imposed on the appellant for alleged contravention of Section 8(1) of the Act of 1973 for different amount - It is for acquisition and also for borrowing. The respondents have, however, failed to show any role of the appellant, Mr. Ishaat Hussain to implicate him as one of the violators of the provisions. He has not been shown to be incharge of the Company or was monitoring the affairs of the company for purchase of the aircraft. The respondents have implicated him for the sake of it without clarifying his role. In the light of aforesaid, we find a case in his favour to cause interference in the impugned order qua Mr. Ishaat Hussain and accordingly the impugned order is set aside qua the appellant. The appeal is disposed of with the aforesaid.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether M/s Tata Korf Engineering Services Limited (M/s TKESL) contravened Section 8(1) of the Foreign Exchange Regulation Act, 1973 by acquiring and transferring foreign exchange without permission.
• Whether M/s TKESL borrowed foreign exchange in violation of Section 8(1) of the Act of 1973.
• Whether the penalties imposed on M/s TKESL and Mr. Ishaat Hussain were justified under the circumstances.
• Whether Mr. Ishaat Hussain was rightly held vicariously liable under Section 68(1) of the Act of 1973.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Contravention of Section 8(1) by M/s TKESL

• Relevant legal framework and precedents: Section 8(1) of the Foreign Exchange Regulation Act, 1973 prohibits acquisition and transfer of foreign exchange without permission from an authorized dealer or the Reserve Bank of India.
• Court's interpretation and reasoning: The court analyzed the evidence provided by the respondent, including documents and statements from Mr. James Patrick Kerrigan, to establish that M/s TKESL was involved in acquiring and transferring foreign exchange without the necessary permissions.
• Key evidence and findings: The evidence showed that the aircraft was purchased in the name of M/s TKESL and that the funds were arranged by M/s Tata Inc. and M/s Tata Ltd., indicating involvement in foreign exchange transactions.
• Application of law to facts: The court found that the transactions were conducted without the requisite permissions, thereby violating Section 8(1) of the Act of 1973.
• Treatment of competing arguments: The appellant argued that the aircraft was purchased by Dr. Willy Korf, but failed to provide sufficient documentary evidence to support this claim.
• Conclusions: The court upheld the finding of contravention of Section 8(1) by M/s TKESL.

Issue 2: Borrowing of Foreign Exchange

• Relevant legal framework and precedents: Section 8(1) also covers unauthorized borrowing of foreign exchange.
• Court's interpretation and reasoning: The court considered the evidence of bank drafts and transactions indicating borrowing by M/s TKESL.
• Key evidence and findings: The court found that the drafts for US$ 333,025 and lb7,068.38 were used for customs duty payments, indicating borrowing of foreign exchange.
• Application of law to facts: The court determined that these transactions constituted unauthorized borrowing under Section 8(1).
• Treatment of competing arguments: The appellant contended there was no borrowing, but the court found the evidence to the contrary.
• Conclusions: The court confirmed the contravention related to borrowing foreign exchange.

Issue 3: Penalties Imposed on M/s TKESL

• Relevant legal framework and precedents: Penalties under the Act of 1973 are imposed for contraventions of its provisions.
• Court's interpretation and reasoning: The court considered the age of the case and the evidence on record, deciding to reduce the penalties to 25% of the original amount.
• Conclusions: The penalty was reduced, acknowledging the peculiarity and age of the case.

Issue 4: Vicarious Liability of Mr. Ishaat Hussain

• Relevant legal framework and precedents: Section 68(1) of the Act of 1973 imposes vicarious liability on individuals in charge of the company at the time of contravention.
• Court's interpretation and reasoning: The court found no evidence that Mr. Ishaat Hussain was in charge of the company or involved in the contravention.
• Key evidence and findings: The respondent failed to show any role of Mr. Ishaat Hussain in the transactions.
• Conclusions: The court set aside the penalties imposed on Mr. Ishaat Hussain.

3. SIGNIFICANT HOLDINGS

• Core principles established: The burden of proof in civil proceedings under the Act of 1973 can shift based on the evidence provided, and penalties must be proportionate to the contravention.
• Final determinations on each issue: The court upheld the contravention findings against M/s TKESL but reduced the penalties. The penalties against Mr. Ishaat Hussain were set aside due to lack of evidence of his involvement.
• Verbatim quotes of crucial legal reasoning: "The authority below thus recorded findings against the appellant and in favour of the respondent to hold that the appellant company got involved in acquisition of foreign exchange and its borrowing without permission of Authorised Dealer or of the Reserve Bank of India."