2018 (6) TMI 677 - AT - FEMA

Contravention of the RBI instructions - remittance for the one share of Mr. Leonid Beyzer had not come in as a foreign direct investment nor had it been made as a debit from his NRE/FCNR account maintained with an authorised dealer/authorised bank - Held that - The appellants are not disputing the charge but have stated that Mr. Leonid Beyzer had transferred the above remittances from his personal account to the account of the company i.e. M/s. True Axiz Resorts Pvt. Ltd. during the period 19.03.2005 to 02.12.2005. Legal requirement of the payment being made from the NRE/FCNR account has been flouted. The NRO account is a Non Resident Ordinary Rupee account while the NRE is a Non Resident External Rupee account. Similarly the FCNR is a Foreign Currency Non Resident Account, and hence they are principally different types of account and if there is a stipulation for payment from only one type of account, not adhering to the same would tantamount to the breach of the legal requirements. Hence, the adjudicating authority s order is correct and is upheld. Not complied with the RBI notification requiring them to file the report within the stipulated period of 30 days - Held that - There is a foot note in the letter which states from RBI that this acknowledgment shall not be deemed or construed in any way as approval by the Reserve Bank for investment in the company, nor does it certify the correctness or completeness of Form FC GPR from the company. This acknowledgment is only for the purpose of having received Form FC GPR from the company. Reserve Bank reserves its rights to call for any further detail from the company including any documents it may deem fit as well as to return the Form FC GPR to the company in view of any discrepancies found therein . The appellants have not been able to produce any final decision in this regard so far. It is therefore apparent that the RBI has still not given them the clearance/permission. Accordingly, the charge against the appellants stands Mr. Leonid Beyzer had not taken prior approval of the Government of India inspite of having investment in another company in the same sector - Held that - In the present case, it has not been alleged that Mr. Leonid Beyzer is either a collaborator or proposes to acquire the entire shareholding of M/s. True Axiz Resorts Pvt. Ltd. It is an admitted fact that he only has one share in the company the rest being entirely held Mr. Valiulin Rashid. Hence, find the appeal on this ground a valid appeal and reject the impugned order to this extent. Lands acquired were all agricultural land and hence were not eligible for investment under the automatic route of foreign direct investment - Held that - Referring to List of activities or items for which automatic route of Reserve Bank for investment from persons resident outside India is not available what is prohibited is the activity of agriculture . It nowhere specifies any stipulation or condition relating to agricultural or non- agricultural land. That the appellants were licensed/permitted to undertake activities relating to tourism has not been disputed. It has not also been alleged that they are seeking to indulge in the activity of agriculture. Hence, stretching this stipulation to hold them liable for violation as they possess agricultural land is not within the scope of the Notification 20/2000 dated 03.05.2000. To that extent, I do not find any contravention with regard to the properties in question in so far as it relates to this particular Notification. Accordingly, I hold so. Levy of penalty confirmed - confiscation of the properties itself is too harsh and therefore set it aside

Summary

Issues Involved:
1. Mode of remittance for foreign direct investment (FDI).
2. Delay in filing the FC-GPR report.
3. Requirement of prior approval from the Government of India for investment.
4. Acquisition of agricultural land under FDI regulations.

Detailed Analysis:

1. Mode of Remittance for Foreign Direct Investment (FDI):
The appellants, M/s. True Axiz Resorts Pvt. Ltd. and Mr. Leonid Beyzer, were charged with contravening RBI regulations by using an NRO account for FDI instead of an NRE/FCNR account. The legal requirement, as per Notification No. 20/2000-RB and Schedule 1 of Regulation 5(1) of the Foreign Exchange Management (Transfer or issue of Security by a person resident outside India) Regulations, 2000, mandates that the payment for shares must be made through inward remittance via normal banking channels or by debit to an NRE/FCNR account. The appellants admitted that the sum of ?33,10,000/- was transferred from Mr. Beyzer's NRO account to the company account, which was deemed a breach of the legal requirements. Hence, the adjudicating authority's order was upheld.

2. Delay in Filing the FC-GPR Report:
The appellants failed to file the FC-GPR report within the stipulated 30 days from the date of issue of shares. The Reserve Bank of India acknowledged the filing of the applications in Form FC-GPR but did not grant final clearance. The appellants argued that the delay was due to their unfamiliarity with English and was a bona fide mistake. However, the tribunal found that the appellants had not complied with the mandatory requirement, and the charge against them stood.

3. Requirement of Prior Approval from the Government of India for Investment:
Mr. Leonid Beyzer was charged with not obtaining prior approval from the Government of India despite having an investment in another company in the same sector, contravening Regulation 5, Paragraph 1 (2) of Schedule 1 of the FEMA Regulations. The tribunal found that the regulation applies only when a person proposes to be a collaborator or to acquire the entire shareholding of a new Indian company. Since Mr. Beyzer held only one share, the tribunal rejected the impugned order to this extent and found the appeal valid.

4. Acquisition of Agricultural Land under FDI Regulations:
The appellants were charged with acquiring agricultural land, which is prohibited for FDI under the automatic route as per Annexure A to Schedule 1 of FEMA Notification No. 20/2000-RB. The tribunal noted that what is prohibited is the activity of agriculture, not the mere possession of agricultural land. The appellants were licensed to undertake tourism-related activities, and there was no allegation of them indulging in agricultural activities. Therefore, the tribunal found no contravention regarding the properties in question under the specific notification. However, it noted that compliance with local laws and land revenue codes must be ensured, which is beyond the scope of FEMA.

Conclusion:
The tribunal upheld the penalties imposed for the violation of RBI regulations and the delay in filing the FC-GPR report. However, it set aside the confiscation of properties, deeming it too harsh, subject to compliance with other relevant laws and pending RBI permissions.