9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (10) TMI 1210 - AT - FEMAOffence under FERA - fraud on the banking system - mens rea is an essential ingredient as the FERA proceedings - As alleged officers responsible for conduct of the company were negligent' - non specified SCN - HELD THAT - Show Cause Notice must necessarily establish that the concerned officer was incharge of, and responsible for conduct of the company and further, spell out the offence committed by such officer. Only certain junior officers have been namedin the SCNs who can under no circumstances be said to be incharge and responsible for the bank or for conduct of its business. Further, onus to prove that a person was responsible for conduct of business of company is on the Department, which it has failed to discharge. In the impugned Orders Mr. Rajgopalan Ramkumar, Mr. Sunil G. Sawant, Mr. R.B. Dhage, Mr. Allwyn Roche, Mr. P.S. Khatu, Mr. T.R. Subramaniam and Mr. Paul Pereira have been held liable under Section 68(2) of FERA for allegedly contravening the provisions of Section 8(1), 9(1)(a), 9(1)(e) and 6(4) read with Section 49, on the ground that the alleged contraventions took place due to their alleged negligence even when section 68(2) was not invoked in the SCNs. The impugned Order has been passed under Section 68(2) of FERA returning a finding that the above-mentioned officers were negligent and have found them guilty under Section 68(2) of FERA. Such a finding, in the absence of any allegation under Section 68(2) in the SCNs is unsustainable in law. It depends upon case to case if the contravention was made by the defaulter with the guilty intention or not. The same is the main test. The guilty intention is missing in the present case on behalf of all the appellants if the statements are read. SCN must be specific and must indicate the precise scope of notice and points on which the officer concerned is expected to give a reply. It is submitted that when the foundation of the charge is not made out in the SCN, then the impugned Order passed under Section 68(2) cannot be sustained. It is not sufficient merely to allege that a person is incharge and responsible and there has to be specific allegation of how one was in charge and responsible to the business of the company, relevant to the allegations in question. As mentioned above, apart from bald statements, there are no specific allegation against the Officers It is a well settled principle of law that merely because penalty may be imposed, unless there is a deliberate defiance of law or the party is guilty of contumacious conduct or dishonest conduct or has acted in connections. Adjudicating Officer has wrongly given its finding that the above-mentioned officers were negligent and have found them guilty under Section 68(2) of FERA. Such a finding, in the absence of any allegation under Section 68(2) in the SCNs is unsustainable in law. It is well settled law that an SCN must be specific and must indicate the precise scope of notice and points on which the officer concerned is expected to give a reply. When the foundation of the charge is not made out in the SCN, then the impugned Order passed under Section 68(2) cannot be sustained It is submitted that the finding of the Adjudicating Officer holding the above-mentioned officers liable under Section 68(2) is beyond the SCNs and ought to be set aside on this ground alone. The finding therefore is not correct the said officers were grossly negligent . Power of RBI to punish an Authorised dealer was included in FERA only in the year 1993 whereas these contraventions were taken place in the year 1991. In the entire show cause notice, there is no material to suggest even remotely that the Noticee allowed the debit to the BFEA Bank Account with an intention to contravene the provisions of the act or the Manual as alleged. The Bank Official who processed the transaction for debit to the account of BFEA merely carried out the instructions of the constituent viz. BFEA as reflected in the cheque issued by and drawn on its account with the Noticee Bank. These instruments were received in the ordinary course of clearance of cheque and in the normal routine course of its banking business, the Officials debited the account of BFEA. There was nothing on the face of the instruments to even remotely suggest that the cheque was being credited into an account of a non-resident. The BFEA being a reputed State Bank of Russia, the Bank Officials had no reason to doubt that the State Bank of the Soviet Union like BFEA would issue its own Banker s cheques in an attempt to contravene the provisions of the Act or the Manual. The Bank Officials acted in good faith and the element of mens rea required for a charge of abetment is completely lacking. It is submitted that no penalty could be imposed in respect of the said charge. No material is found to establish that the banks and its official are involved in any conspiracy directly or indirectly, intentionally or deliberately for the said lapse. No doubt it is serious matter and it should not have happened. It did happen 1991 when communication and technology was not so equipped. Even staff or banks officials may not be experts at that point of time. From the conduct of the bank and pleading of all the appellants, it appears that they are feeling their mistakes. Case of the appellants are that being a bank it was only for RBI to impose the penalty if any thought alternative submissions are also made. The money in question has also brought back by the bank before issuance of show cause noticed. Country has not lost any revenue. After 1991 the bank has conducted thousand of transactions without any default. RBI has not cancelled its licence of the appelalnt for foreign exchange. Entire penalty amount has been deposited by the Bank. It appears that after realising lapse on their part, in order to show their bona-fide, the statement was made during hearings of appeals that without prejudice, the said penalty amount shall not be pressed by the appellants for refund. The same may be deposited with the Prime Minister Relief Fund, if so advised by the respondent.
Issues Involved:
1. Contravention of Sections 6(4), 6(5) read with Section 49; 8(1) read with para 10.3(ii), 10.12, and 10.17 of Chapter 10 of the Exchange Control Manual, 1987 Edition Vol. I (ECM); 9(1)(a) and 9(1)(e) of the Foreign Exchange Regulation Act, 1973 (FERA). 2. Liability under Section 68 of FERA for officers of the bank. 3. Validity and application of the Exchange Control Manual, 1987. 4. Mens rea as an essential ingredient in contraventions under FERA. 5. Applicability of Sections 8 and 9 of FERA to authorized dealers. 6. Penalty imposition and the role of RBI under Section 6 and Section 73A of FERA. Issue-wise Detailed Analysis: 1. Contravention of Sections 6(4), 6(5) read with Section 49; 8(1) read with para 10.3(ii), 10.12, and 10.17 of Chapter 10 of ECM; 9(1)(a) and 9(1)(e) of FERA: The bank was accused of crediting large sums to the non-resident rupee account of Girobank Plc, London, without prior permission from the RBI, thereby violating multiple provisions of FERA and ECM. The adjudicating officer found the bank guilty of these contraventions, imposing penalties. However, the bank argued that it acted in good faith, following instructions from reputed banks, and that no foreign exchange was actually transferred out of India. The bank voluntarily repatriated the equivalent foreign exchange amount before the issuance of the show-cause notices. 2. Liability under Section 68 of FERA for officers of the bank: The officers were held liable under Section 68(1) for being in charge of and responsible for the conduct of the bank's business. However, the officers argued that they were not the directing or controlling mind of the bank and had acted in good faith. The adjudicating officer's finding of negligence under Section 68(2) was challenged on the grounds that the show-cause notices did not contain specific allegations of consent, connivance, or neglect. 3. Validity and application of the Exchange Control Manual, 1987: The bank contended that the ECM, being a guidebook, could not impose criminal liability. The ECM provisions were argued to be administrative instructions rather than mandatory rules. The respondent countered that the ECM contained statutory directions issued under Section 73(3) of FERA, and non-compliance with these directions constituted a contravention of FERA. 4. Mens rea as an essential ingredient in contraventions under FERA: The bank argued that mens rea (guilty intention) was essential for imposing penalties under FERA, as the proceedings were quasi-criminal in nature. The adjudicating officer did not attribute any mens rea to the officers, leading to the argument that the imposition of penalties was unjustified. The respondent contended that mens rea was not required for contraventions under FERA, citing various judgments. 5. Applicability of Sections 8 and 9 of FERA to authorized dealers: The bank argued that Sections 8 and 9 did not apply to authorized dealers, who were delegates of the RBI. The respondent countered that authorized dealers were included in the term "person" under Section 9 and were not exempt from its provisions. The adjudicating officer's interpretation of these sections was challenged as being contrary to established legal principles. 6. Penalty imposition and the role of RBI under Section 6 and Section 73A of FERA: The bank argued that only the RBI had the authority to impose penalties on authorized dealers under Section 6 and Section 73A of FERA. The adjudicating officer's imposition of penalties under Section 50 was challenged as being beyond the scope of the act. The respondent argued that Section 73A was an additional provision and did not exclude the application of Section 50. Conclusion: The appeals were allowed, and the adjudication orders were set aside. The bank and its officers were exonerated, and the penalties were not imposed. The bank's voluntary repatriation of the foreign exchange amount and the absence of mens rea were significant factors in the decision. The bank's statement that it would not seek a refund of the deposited penalty amounts was noted, and it was suggested that the amount could be deposited with the Prime Minister's Relief Fund if advised by the respondent.
|
