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2024 (6) TMI 509 - HC - FEMAApplication for compounding contravention under FEMA - petitioner filed Form FC-TRS belatedly, resulting in investigations and complaints under various Acts - HELD THAT - Rule 8(2) of the Compounding Proceeding Rules states that The Compounding Authority shall pass an order of compounding after affording an opportunity of being heard to all concerned as expeditiously as possible and not later than 180 days from the date of application. Thus, the second respondent becomes a concerned party. In case the first respondent was advised by the letter dated 15.06.2017, since the investigations on charges of money laundering against the petitioner were ongoing, compounding proceedings ought not to be undertaken in the matter and the case has to be remitted to the respondent Department. Rule 4(1) of the Compounding Proceeding Rules specifies the powers of the first respondent to compound contraventions, stating that if any person contravenes any provisions of FEMA, 1999, except clause (a) of Section 3 of that Act. Section 3 (a) deals with contraventions which are suspected of Money Laundering. Thus, Rule 4(1) clearly empowers the first respondent to compound all contravention, except for those that might be suspected of money laundering. In addition to the that, a proviso has been added to Rule 8(2) of the FEMA (Compounding Proceedings) Rules, 2000 vide Gazette Notification dated 20.02.2017, which states that provided that with respect to any proceeding initiated under Rule 4, if the Enforcement Directorate is of the view that the said proceeding relates to a serious contravention suspected of terror financing, or affecting the sovereignty and integrity of the nation, the compounding authority shall not proceed with the matter and shall remit the case to the appropriate Adjudicating Authority for adjudicating contravention u/s 13. Compounding application was returned to the petitioner on account of the Proviso to Rule 8(2) of the FEMA (Compounding Proceedings) Rules, 2000 which does not empower the first respondent to compound contraventions suspected of money laundering.
Issues involved:
Challenging communication returning application for compounding contravention under FEMA, 1999. Details of the judgment: 1. The petitioner, engaged in consultancy business, sold shares to Sequoia Group, leading to contraventions under FEMA, 1999. The petitioner filed Form FC-TRS belatedly, resulting in investigations and complaints under various Acts. The petitioner sought compounding of contraventions, but the application was returned by the first respondent without issuing a show cause notice, alleging violation of natural justice and political pressure. 2. Investigations revealed multiple contraventions by the petitioner, including entering into capital account transactions and profit sharing agreements with non-resident acquirers, leading to penalties under FEMA, 1999. The petitioner's delayed filing of Form FC-TRS further established contravention under FEMA, 1999, and liability for penalties. 3. The complaint lodged under FEMA, 1999 led to a show cause notice to the petitioner and others, with provisions for remitting cases to adjudicating authorities in case of suspected money laundering or terror financing. The petitioner was found liable for contraventions and penalties under FEMA, 1999. 4. The Compounding Proceedings Rules empower the Compounding Authority to call for relevant information and documents, with a timeline for passing orders. Due to ongoing investigations related to money laundering charges against the petitioner, the compounding proceedings were not undertaken, and the case was remitted to the concerned department. 5. Rule 4(1) of the Compounding Proceedings Rules allows compounding of contraventions under FEMA, 1999, except those suspected of money laundering. The Proviso to Rule 8(2) further restricts compounding contraventions suspected of terror financing or affecting national integrity. The application was returned based on these provisions. 6. The Court found no infirmity in the first respondent's order, dismissing the writ petitions as devoid of merits. The judgment upheld the decision to return the compounding application, and the writ petitions were dismissed without costs.
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