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TMI Blog2014 (7) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... urt since March 2014, take an appropriate view on the application, in accordance with law. The demand draft which is to be forwarded by the petitioner to the compounding authority shall abide by the final decision of the compounding authority on the application of the petitioner. We have not interfered with the order of compounding. The orders passed by the Chief General Manager of the Reserve Bank and the communications dated 9 April 2014 and 22 May 2014 are lawful and do not suffer from any illegality. - Civil Misc. Writ Petition No. 13627 of 2014 - - - Dated:- 31-7-2014 - D.Y. Chandrachud and Dilip Gupta, JJ. For Appellant: Manu Ghildyal and R.P. Agarwal For Respondents: A.S.G.I., Ashok Bhatnagar and Manish Trivedi JUDGMENT 1. In these proceedings, the petitioner has called into question the legality of an order dated 23 December 2013 passed by the Chief General Manager of the Reserve Bank of India on an application moved by the petitioner under Section 15 of the Foreign Exchange Management Act, 1999, FEMA, for compounding a contravention. By the order impugned, the application for compounding of an admitted contravention of the Foreign Exchange Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve Bank after an inordinate delay, on 9 March 2012. The petitioner was, therefore, called upon to furnish the reason for reporting the transactions after a lapse of four years. The petitioner was, however, informed that it had an option of moving the Reserve Bank for compounding the contraventions in terms of the prevailing guidelines. 3. On 16 May 2012, the petitioner moved the Reserve Bank for compounding of the contraventions. While admitting the contraventions, the petitioner stated as follows: We may submit that the delay in reporting transaction to Reserve Bank of India is not willful, unintentional, without having mala fide and fraudulent intentions and occurred out of ignorance and non availability of competent person in Varanasi. We most humbly request you, kindly compound the contravention as requested in the application. 4. On 27 September 2012, the Reserve Bank, while referring to the application for compounding, drew to the attention of the petitioner that its authorised dealer, Punjab National Bank had also reported another transaction involving a guarantee of USD 10 million issued by the petitioner to Standard Chartered Bank which did not form a part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the applicant submitted that contraventions occurred as the applicant was not aware of the procedures and the lapse was unintentional and requested to take a lenient view. 8. The order of compounding held the petitioner guilty of having contravened Regulations 6(2)(vi), 10 and 15(iii) of the 2004 Regulations. The amount involved in the contravention was found to be USD 10.515 million equivalent to ₹ 55.12 crores. The order notes that under Section 13 of the FEMA, any person contravening any provision of the Act is liable to a penalty up to thrice the sum involved in the contravention upon adjudication. However, a lenient view was taken having due regard to the rationale underlying the compounding provisions, the submissions which were urged and the facts and circumstances of the case. The admitted contraventions were, accordingly, compounded subject to the payment of an amount of ₹ 57.74 lacs which was directed to be deposited within a period of fifteen, days. 9. The petitioner filed an application seeking a review of the compounding order. On that application, the Chief General Manager, while passing an order on 24 January 2014, noted, again that the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the FEMA was ₹ 55.12 crore equivalent to USD 10.515 million. In the circumstances, there is absolutely no merit in the contention that the amount involved in the contravention is not quantifiable or that consequently, the cap of ₹ 2 lacs on the maximum penalty imposable would be attracted. The cap of ₹ 2 lacs applies only where the amount which is involved in the contravention is not quantifiable. In the present case, the amount involved in (sic) contravention is quantifiable and has been quantified. Moreover, it must be noted that the proviso to Rule 4(1) of the Compounding Rules specifically provides that no contravention shall be compounded unless the amount involved in such contravention is quantifiable. When the pensioner filed the application for compounding the contravention, that was obviously on the basis that the amount involved in the contravention was quantifiable. Having filed the application for compounding, the petitioner cannot now be heard to turn around and argue to the contrary. 14. The second submission which has been urged, is that no reasons have been furnished in the impugned order of compounding for coming to the conclusion that the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 provides as follows: 10. In case a person fails to pay the sum compounded in accordance with rule 9 within the time specified in that rule, he shall be deemed to have never made an application for compounding of any contravention under these rules and the provisions of the Act for contravention shall apply to him. Under Rule 12, every order of compounding has to specify the provisions of the Act and, inter alia, of the Rules in respect of which a contravention has taken place alongwith the details of the alleged contravention. 17. In the present case, the contravention of the provisions of the FEMA arose out of several transactions. The first two were the remittances which the petitioner made on 14 August 2007 of USD 15,000/- and on 16 August 2008 of USD 5,00,000/- to its wholly owned subsidiary in Singapore. These remittances were reported only on 9 March 2012. The petitioner also issued a corporate guarantee of USD 10 million (equivalent to ₹ 53.01 crore) on 30 December 2011 which was reported to the Reserve Bank on 28 September 2013. The petitioner failed to obtain a UIN and was found to have made two remittances amounting to ₹ 2.05 crore without a UIN. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpounding on the basis that there was a contravention, the petitioner is precluded from now denying that there was a contravention. An order of compounding cannot be regarded as an order of adjudication of a violation. That is because compounding is premised on an acceptance of the contravention. 19. At this stage, we may note that after the submissions had been concluded and during the course of the judgment, learned Senior Counsel appearing on behalf of the petitioner has fairly stated, on taking instructions, that the petitioner is ready and willing to deposit the entire amount of ₹ 57.74 lac as directed by the compounding authority in its order dated 23 December 2013. However, it has been submitted that the petitioner may be relieved of the consequence that would emanate from the provisions of Rule 10 of the Compounding Rules. Moreover, it has been stated in the petition, as amended, that on 22 May 2014, a summons has been issued to the petitioner by the Directorate of Enforcement. Prior thereto, on 9 April 2014, the Reserve Bank informed the petitioner that since it has failed to deposit the amount under the compounding order,, the matter has been forwarded to the Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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