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2012 (2) TMI 268 - HC - FEMAFERA 1973 - Release of foreign exchange in violation of the instructions of the RBI resulting in a violation of the relevant provisions of the FERA 1973 - allegation against the Appellants is a failure to discharge their responsibilities under the law and to ensure legal compliance - Section 68(1) & 68(2) Held that -The burden of establishing a defence in terms of the proviso to subsection (1) of Section 68 lies upon the person against whom the contravention is established under the substantive part of the provision. Having failed to establish their burden, the absence of connivance cannot come to the aid of the Appellants. Hence, no substantial question of law would arise in these appeals. The Appeals are accordingly dismissed.
Issues Involved:
1. Violation of Foreign Exchange Regulations under the BTQ scheme. 2. Release of foreign exchange based on bogus documents. 3. Vicarious liability of the company's Managing Director and Director. 4. Application of Section 68(1) and 68(2) of the Foreign Exchange Regulation Act (FERA), 1973. 5. Discharge of burden under the proviso to Section 68(1). Detailed Analysis: 1. Violation of Foreign Exchange Regulations under the BTQ scheme: The first notice alleged that the company, a Full Fledged Money Changer (FFMC) authorized by the Reserve Bank, released foreign exchange in violation of the BTQ scheme conditions. The violations included releasing foreign exchange without verifying passports/air tickets, without the presence of travelers, and without obtaining their signatures on travelers' cheques. The adjudicating officer concluded that foreign exchange was released to agents acting for passengers, some of whom stated their passports were misused. The company and its officers failed to ensure compliance with the Reserve Bank's special conditions, leading to penalties. 2. Release of foreign exchange based on bogus documents: The second notice alleged that the company released foreign exchange amounting to U.S. $15,25,805 to various persons based on bogus documents without complying with Reserve Bank conditions. The Special Director found that the foreign exchange was released for business visits of employees of non-existent companies without verification. The statement of an officer corroborated this finding, leading to penalties for the company and its officers. 3. Vicarious liability of the company's Managing Director and Director: The Tribunal noted that the show cause notices were issued based on the vicarious liability of the Managing Director and Director, who were responsible for the company's conduct. The Tribunal held that they failed to prove due diligence or lack of knowledge of the contraventions, thus holding them liable under Section 68(1) of FERA. 4. Application of Section 68(1) and 68(2) of FERA, 1973: Section 68(1) deems every person in charge of and responsible to the company for its conduct guilty of contraventions committed by the company unless they prove the contravention occurred without their knowledge or despite due diligence. Section 68(2) addresses contraventions committed with the consent or connivance of or due to neglect by any director or officer. The Tribunal found no evidence of connivance but held the officers liable under Section 68(1). 5. Discharge of burden under the proviso to Section 68(1): The appellants argued that they had no knowledge of the violations and had exercised due diligence. They cited internal audits and the absence of adverse findings by the Reserve Bank. However, the Tribunal held that mere averments were insufficient and that the appellants failed to provide cogent evidence of due diligence or lack of knowledge. Consequently, the Tribunal upheld the penalties imposed by the adjudicating officer. Conclusion: The appeals were dismissed as no substantial question of law arose. The Tribunal confirmed the findings of violations of FERA provisions and the failure of the appellants to discharge the burden under the proviso to Section 68(1). The penalties imposed were deemed proportionate to the nature of the contraventions.
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