2024 (9) TMI 558 - AT - FEMA

Offence under FEMA - enhancement of penalty - information was received that out of the 21 foreign remittances, the export obligations were not completed within the prescribed period of financial year - HELD THAT - On reading of Section 13 (1) FEMA it is obvious that the maximum amount of penalty which can be imposed under the Section is three times the amount of contravention involved. From the language of the section, it is clear that the section has not prescribed either a fixed amount of penalty or minimum amount of penalty. It therefore, follows that the amount of the penalty which is to be imposed by the Adjudicating Authority is a matter of discretion which, of course, is necessarily required to be exercised judiciously after taking into account the facts of the case and the evidence placed before him. As per the admitted fact, export proceeds are already realized by the respondent, though with delay of two years eight months and three years two months, from the date of exports. The fact that export proceeds are already realized, we agree with the view of Ld. Adjudicating Authority that this case pertains to only technical contravention, on account of delay in realizing the export proceeds. The said contravention of delay in realizing the export proceeds does not amount to quantifiable contravention equivalent to the proceeds of exports in any manner, asthere was no intention on the part of the respondents to indulge in contravention of the substantive provisions, as remittances against exportsare already realised. As decided in Hindustan Steel Ltd. vs. State of Orissa 1969 (8) TMI 31 - SUPREME COURT reading of the Adjudication Order reflects judiciousness on the part of the Adjudicating Authority, in not having imposed penalty which is commensurate with the amount of foreign remittance against exports, particularly so when the contraventions were technical in nature as the substantive provisions of the Regulations have been complied with, even though with some delay. The Adjudicating Authority has imposed separate penalty of Rs. Two Lakh each on both the Noticee(s) on account of delay for the compliances/remittances against exports. Where the contraventions are not of substantive provisions, the penalties of Rs. Two Lakh each on both the Noticee(s), imposed by the Adjudicating Authority meet the ends of justice. As reasons relied upon by the Adjudicating Authority for the imposition of the penalties, we observe that the order of the Adjudicating Authority cannot be interfered with.

Summary

Issues:
1. Penalty imposed for contravention of Foreign Exchange Management Act, 1999.
2. Interpretation of Section 13(1) of FEMA regarding penalties.
3. Discretion of Adjudicating Authority in imposing penalties for contraventions.
4. Technical contravention vs. substantive contravention in export proceeds realization.

Detailed Analysis:
1. The judgment deals with an appeal filed by the Union of India against an order imposing a penalty on two respondents for contravening section 7(3) of the Foreign Exchange Management Act, 1999, related to delay in realizing export proceeds. The penalties were imposed based on the delay in realization of export proceeds amounting to US$ 9,93,652. The appellant sought an increase in the penalty amount, citing the contravention of FEMA affecting the country's financial systems.

2. The appellant argued that the Adjudicating Authority failed to consider the objective of FEMA, emphasizing the provisions of section 13(1) of FEMA regarding penalties for contraventions. The appellant contended that penalties should be imposed up to thrice the sum involved in the contravention, as per the provisions of FEMA. The respondent, on the other hand, claimed that only technical contravention occurred due to a delay in realization, not non-realization, and that all export proceeds were eventually realized, leading to no financial loss of foreign exchange.

3. The Tribunal analyzed the provisions of Section 13(1) of FEMA, emphasizing that the amount of penalty to be imposed is at the discretion of the Adjudicating Authority. Referring to a Supreme Court case, it highlighted that the statute provides for penalties up to thrice the sum involved in contravention, allowing the Authority to exercise discretion judiciously. The Tribunal agreed with the Adjudicating Authority's decision to impose a lenient penalty due to the technical nature of the contraventions in realizing export proceeds.

4. The Tribunal concluded that the delay in realizing export proceeds constituted a technical contravention and not a substantive one, as the export proceeds were eventually realized, albeit with delays. Citing a Supreme Court judgment, it emphasized that penalties should be imposed judiciously, especially in cases of technical or venial breaches. The Tribunal upheld the Adjudicating Authority's decision to impose a penalty of Rs. 2 lakhs each on the respondents for the delay in compliance with remittances against exports, considering the circumstances and nature of the contraventions.

In summary, the Tribunal dismissed the appeal, upholding the penalties imposed by the Adjudicating Authority, considering the technical nature of the contraventions and the eventual realization of export proceeds despite delays.