2012 (7) TMI 145 - HC - FEMA

FERA penalty - contravention of Section 9(1)(f)(i) of FERA 1973 - appellants had paid equivalent Indian currency through Mr. Niranjan Shah to a person outside India without any general or special exemption granted by the RBI as a consideration for acquisition of US 1,00,000 - Each of the appellant received US 25000/- in their respective saving bank account on or about 12.10.1991 as and by way of remittance - According to the appellants the said remittances were received by them in accordance with the scheme namely Remittances in Foreign (Immunities ) Scheme, 1991 Held that - Scheme framed under the said Act gives various immunities which are listed in Section 3 of the said Act - payments made to Shri Niranjan Shah for being remitted outside India with a view to acquire US 25000/- by such appellant would not be in violation of Section 9(1)(f)(i) of the FERA Act in view of the fact that the amount of US 25,000/- has been declared as having been received under the said Scheme - no action could have been initiated against appellants under Section 9(1)(f)(i) of the FERA Act

Summary

Issues Involved:
1. Justification of penalty imposition under Section 9(1)(f)(i) of FERA 1973.
2. Applicability of immunity under the Remittances in Foreign (Immunities) Scheme, 1991.
3. Procedural fairness and adherence to principles of natural justice.
4. Legitimacy of the transactions involving payments to Mr. Niranjan Shah.
5. Compliance with tribunal orders regarding penalty deposits.

Detailed Analysis:

1. Justification of Penalty Imposition under Section 9(1)(f)(i) of FERA 1973:
The core issue was whether the Tribunal was justified in affirming the imposition of penalty on the appellants for allegedly paying Indian currency to a person outside India without RBI's exemption as consideration for acquiring US$ 25,000. The appellants were penalized by the Special Director and the Appellate Tribunal for Foreign Exchange for contravening Section 9(1)(f)(i) of the FERA Act. The Tribunal's decision was challenged on the grounds that the remittances were protected under the Remittances in Foreign (Immunities) Scheme, 1991.

2. Applicability of Immunity under the Remittances in Foreign (Immunities) Scheme, 1991:
The appellants argued that they received the remittances under the said Scheme, which provided immunity from disclosing the nature, source, or the person sending the foreign exchange. The court noted that the foreign exchange was received during the scheme's operation, and thus, the appellants were protected from any action under the FERA Act. The court held that the Enforcement Directorate could not initiate action against the appellants as the remittances were within the scheme's provisions.

3. Procedural Fairness and Adherence to Principles of Natural Justice:
The appellants contended that the Special Director did not provide them with an opportunity to cross-examine witnesses or access relevant materials, violating principles of natural justice. The court observed that the Special Director's order was passed without granting the appellants the opportunity to cross-examine Mr. Niranjan Shah or review the investigation records. This procedural lapse was significant in the court's decision to set aside the penalties.

4. Legitimacy of the Transactions Involving Payments to Mr. Niranjan Shah:
The respondents argued that the appellants paid Rs. 6,40,000 to Mr. Niranjan Shah, who then arranged for the remittance of US$ 25,000 from Mr. Nilesh Vadhani in Dubai. The court found that the payments to Mr. Niranjan Shah, a resident in India, did not violate the FERA Act, as the transactions were protected under the said Scheme. The court rejected the respondents' assertion that the payments constituted a contravention of Section 9(1)(f)(i) of the FERA Act.

5. Compliance with Tribunal Orders Regarding Penalty Deposits:
The respondents contended that the appellants did not comply with the tribunal's order to deposit 60% of the penalty amount. The court noted that the appellants had deposited Rs. 99,000 as directed by the tribunal and decided the appeals on merits, rendering the compliance issue moot.

Conclusion:
The court set aside the orders of the Special Director and the Appellate Tribunal, holding that the appellants were protected under the Remittances in Foreign (Immunities) Scheme, 1991. The penalties imposed were deemed unjustified, and the appellants were entitled to a refund of Rs. 99,000 each, with interest if not paid by the stipulated date. The court emphasized the importance of procedural fairness and the protection provided by the said Scheme.