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TMI Blog2019 (5) TMI 1466X X X X Extracts X X X X X X X X Extracts X X X X ..... g of Section-42 of the Act and if contravention provisions of the Act. At the best, at present BCCI may be asked to pre-deposit the penalties on their behalf at this stage without prejudice till the said important legal issue is finally decided. Whether the funds transferred by BCCI to the CSA account was in the nature of Capital Accounts Transaction or Current Account ? - HELD THAT:- It is not the case of the respondent or of the Adjudicating Authority that any of the remittances or transactions made by BCCI to CSA were prohibited or restricted by The Foreign Exchange Management (Current Account Transactions) Rules 2000 . As urgued on behalf of appellants that none of the remittances were prohibited by the above said rules and the remittances made by BCCI to CSA were permissible current account transactions. Counsel for respondent does not dispute that if the transactions fall under current account, the permission of RBI is not necessary. This issue at this stage cannot be finally concluded at this interim stage, however, prima facie, find force in argument of the appellant. Prima facie, at this stage the penalties imposed by the Adjudication Authorities, they are dispe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the appeals will be decided by the said time, otherwise the same shall be renewed for a further period of six months after the expiry date. - MP-FE-251/MUM/2018(Stay), MP-FE-214/MUM/2018(Exem.), MP-FE-224/MUM/2018(Misc.), MP-FE-225/MUM/2018(Exem.), MP-FE-244/MUM/2018(Stay), MP-FE-196/MUM/2018(Exem.), MP-FE-197/MUM/2018(Misc.), MP-FE-198/MUM/2018(Stay), MP-FE-199/MUM/2018(Exem.) - - - Dated:- 17-5-2019 - JUSTICE MANMOHAN SINGH CHAIRMAN MP-FE-251/MUM/2018(Stay), MP-FE-214/MUM/2018(Exem.), MP-FE-224/MUM/2018(Misc.), MP-FE-225/MUM/2018(Exem.), MP-FE-244/MUM/2018(Stay), MP-FE-196/MUM/2018(Exem.), MP-FE-197/MUM/2018(Misc.), MP-FE-198/MUM/2018(Stay), MP-FE-199/MUM/2018(Exem.), MP-FE-200/MUM/2018(Misc.), MP-FE-201/MUM/2018(Stay), MP-FE-202/MUM/2018(Exem.), MP-FE-203/MUM/2018(Exem.), MP-FE-204/MUM/2018(Misc.), MP-FE-205/MUM/2018(Stay), MP-FE-206/MUM/2018(Exem.), MP-FE-207/MUM/2018(Exem.), MP-FE-208/MUM/2018(Misc.), MP-FE-209/MUM/2018(Stay), MP-FE-210/MUM/2018(Exem.), MP-FE-211/MUM/2018(Exem.), MP-FE-212/MUM/2018(Misc.), MP-FE-213/MUM/2018(Stay), MP-FE-214/MUM/2018(Exem.), MP-FE-215/MUM/2018(Exem.), MP-FE-216/MUM/2018(Misc.), MP-FE-217/MUM/2018(Stay), MP-FE-21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) 2,00,00,000 4) 1,50,00,000 3. T-4/16-B/SDE/R/2011 (SCN VI) 1) BCCI 2) Shri Lalit Kumar Modi 3) Shri N. Srinivasan 4) Shri M.P. Pandove 1) 10,00,00,000 2) 2,50,00,000 3) 2,50,00,000 4) 2,00,00,000 4. T-4/16-B/SDE/R/2011 (SCN VII) 1) BCCI 2) Shri Lalit Kumar Modi 3) Shri N. Srinivasan 4)Shri M.P. Pandove 1) 3,00,00,000 2) 10,00,000 3) 40,00,000 4) 10,00,000 5. T-4/16-B/SDE/R/2011 (SCN VIII) 1) BCCI 2) Shri Lalit Kumar Modi 3) Shri N. Srinivasan 4) Shri M.P. Pandove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y) imposed on Shri A.K. Nazeer Khan, the then Chief Manger, State Bank of Travancore, Jaipur should be deposited at the office of the Joint Director, Directorate of Enforcement, Kaisar-I-Hind Building, 4th Floor, Currimbhay Road, Ballard Estate, Mumbai-400 001, by means of a Demand Draft/Pay order drawn in favour of DDO A/c Directorate of Enforcement, Mumbai within 45 days from the date of receipt of this Order. While depositing the penalty, the Adjudication order No. And date as mentioned in the first page of this order should be quoted clearly. 2. The admitted facts are that the inaugural session of IPL was held in April May, 2008. Letter dated 13.03.2009, addressed by Ministry of Home Affairs ( MHA ) to BCCI, informing them that due to the coinciding general elections, State Governments would be unable to provide security for the second season of the IPL in 2009 ( IPL-2 ). 2.1 Emergency Working Committee meeting held on 22.03.2009 where it was discussed that- (a) BCCI could not reschedule IPL-2 since the schedule of International matches is fixed in advance in order to avoid clashes and overlap in conduct of various international tournamen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012. 5. By letter dated 13.04.2015, ED informed BCCI that the Special Director, ED is of the opinion that adjudication proceedings be held against BCCI. Call Notice for personal hearings was sent to BCCI who received. 6. When the hearing was held on 29.04.2015. BCCI s filed an application under Rule 4(3) 4(5) of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 seeking reasons accompanying the opinion dated 13th April, 2015. Arguments were advanced on the same at the hearing. Advocates for BCCI filed a note on arguments/written submission pursuant to liberty granted by the ED at the personal hearing on 29th July, 2015. The Adjudicating Authority passed an Order dated 19.11.2015 on the Application dated 29th July, 2015. In the order, the Adjudicating Authority given the reasons for the Opinion and reconfirmed the Opinion. 7. In the meanwhile, Judgment passed by Hon ble Bombay High Court in Writ Petition No. 2803 of 2015 ( Lalit Kumar Modi v Special Director, Directorate of Enforcement, Western Region, Mumbai ( ED ) Anr.) ( LKM Judgment ), inter alia holding and directing as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of FEMA 1999 b) The amount of US$ 4,98,62,799.42 mentioned in this SCN represents the total remittances made by BCCI to CSA to meet the expenses incurred /proposed to be incurred, by them on behalf of BCCI, for the conduct of IPL Tournament in South Africa. These remittances were made against an agreement titled heads of Agreement dated 30.3.2009 executed between BCCI and CSA. These remittances were made by BCCI from their bank account maintained with State Bank of Travancore (Since merged with SBI), Jaipur Branch, covered under 8 separate remittances , out of which, amounts totalling US$ 3,55,00,000 were made under 6 remittances during the period 31.3.2009 to 23.5.2009 and the remaining two remittances of US$ 40,00,000 US$ 1,03,62,799.42 were made on 10.8.2009 and 27.8.2010 respectively. The requisite instructions for the transfer of funds for first two remittances were given by BCCI to their bank on 28.3.2009, which was prior to the signing of the agreement with CSA. Similarly, the last two remittances were made after the conclusion of the tournament, out of which, the last remittance of US $ 1,03,62,799.42 was effected, as late as 15 months after the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch permission was taken by BCCI from RBI for making these payments to CSA. Thus, the charge against BCCI was proved and established and accordingly, penalty was, imposed on BCCI, in terms of section 13(1) of FEMA 2999. ( The detailed findings made, in holding the BCCI guilty of the charge, resulting in the imposition of penalty, is given under Para 17.1 to 17.16 of the Adj. Order ) f) Out of the remaining noticees in this SCN, charges were found established against (i) Shri Lalit Kumar Modi, the then Chairman of IPL (ii) Shri N. Srinivasan, the then Hon Secretary of BCCI and (iii) Shri M.P. Pandove, the then Hon. Treasurer of BCCI. The role played by Shri M.P. Pandove At the relevant time, Shri M.P. Pandove was working as the Hon. Treasurer of BCCI.) The declaration under Form A-2, corresponding to the transfer of funds to CSA, were all signed by Shri M.P Pandove, in his capacity as the Treasurer of BCCI. While submitting the A-2 Forms, no documentary proof was furnished by Shri M.P. Pandove to the bank to confirm the specific purposes, for which, these remittances were sought to be made to CSA. In respect of the las ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted to, by BCCI with the help of CSA, to bypass the requirement of opening an account in their own name, for which, specific permission was required from RBI. d) The BCCI had contested the existence of the A/c in the name of IPL (SA) Pty Ltd by submitting that citing some discrepancies inn the title of this A/c by stating that there was no bank A/c in the name of IPL (SA) Pty Ltd. In the complaint filed u/s 16(3) of FEMA 1999, it was stated that an amount of ZAR 2,90,550,000 was credited into the bank A/c No 420948619 maintained with Standard Bank of South Africa. The transcript of this A/c had also confirmed the credits of these amount in the said A/c by way of transfer from the bank A/c of CSA. Also, the credits in this A/c were funded, out of the remittances made by BCCI to CSA, for meeting the expenses IPL -2 in South Africa. e) There was no dispute regarding the existence A/c No 420948619 maintained with Standard Bank of South Africa. It is thus apparent that, the said account was managed and controlled through a proxy entity, by BCCI. The funds credited in the said account had also emanated from the coffers of BCCI. Having confirmed the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oder:- 1. Shri Lalit Kumar Modi 2. Shri N. Srinivasan 3. Shri M.P. Pandove The role played by Shri M.P. Pandove The findings made under SCN-V in respect of the role of Shri M.P. Pandove also holds good in this SCN as well. v) VII. SCN. No. T-4/16-B/SDE/R/2011 (SCN-VII) a) In this SCN, the BCCI was charged u/s 6(3)(d) of FEMA 199 r.w Reg3 5 of FEM (Borrowing or Lending in Foreign Exchange) Reg. 2000, for borrowing foreign exchange amounting to US$ 60,00,143 (Equiv. ₹ 30,00,07,150) from CSA. The concerned office bearers/officials of BCCI were charged in terms of section 42(1) (2) of FEMA 1999. b) The aforesaid amount, represented the excess amount transferred by CSA from their A/c to the dedicated bank A/c no. 420948619. It was the contention of BCCI that these transfers had taken place between CSA and its associate entity, and therefore, the charge does not sustain. As per the findings given under SCN-V, the dedicated A/c was nothing other than an account controlled and operated by BCCI through Proxy. The transcript of the dedicated bank account rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the figure of ₹ 4,40,01,581 as being due to CSA, was taken out from the books of A/c of BCCI, which formed part of the balance sheet of BCCI for the corresponding period, showing the details under the heads of current liabilities . The remittance of US$ 1,03,62,799.42 is a well established and confirmed fact. Thus, the remittance of excess payment of Equiv. ₹ 44,15,99,200/- remained unaccounted and unexplained by BCCI, leading to the confirmation of the charge against them in the SCN resulting into the imposition of penalty, in terms of section 13(1) of FEMA 1999. ( The detailed findings made, in holding the BCCI guilty of the charge resulting in the imposition of penalty is given under Para 40.1 to 40.4 of the Adj. order ) c) Out of the remaining noticees in this SCN, charges were found established against (i) Shri Lalit Kumar Modi (ii) Shri N.Srinivasan and (iii) Shri M.P.Pandove. The role played by Shri M.P. Pandove The findings made under SCN-I in respect of the role of Shri M.P. Pandove also holds good in this SCN as well, as the amount of US$1,03,62,799.42 remitted, which form the basis for the charge in this SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 3(a) of the FEM (Realization, Repatriation and Surrender of Foreign Exchange) Reg.2000, for failing to take effective steps to repatriate the revenue earned from the Pouring rights amounting to ZAR 9,31,5667 (Equiv. ₹ 66,54,050). The concerned office bearers/ officials of BCCI were charged in terms of section 42(1) (2) of FEMA 1999. The concerned office bearers/ officials of BCCI were charged in terms of section 42(1) (2) of FEMA 1999. b) BCCI had contested the charge by submitting that the revenue from the pouring rights were not due or accrued to them and therefore, section 8 of FEMA 1999 had no applicability. It was also submitted by them that these amounts were not mentioned in the agreement, as being part of the amount entitled to be received by them from CSA .They also contended that these amounts were claimed by the concerned stadia owners, as being their rights, and there was dispute arose with the stadia owners on this count. Shri N. Srinivasan in his statement had admitted that two types of revenues were available to BCCI directly viz. revenue from the sale of tickets and revenue from the pouring rights . In the debit note raised by CSA u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of US$ 89,34,040 received and credited in the EEFC A/c of BCCI, declared as the proceeds of ticket sale and VAT refund, was funded out of the remittance made by BCCI for the purported purpose final settlement of the IPL 2009 aimed at discharging their obligation in realizing the proceeds of ticket sale and VAT refund. Thus, the charge was proved and established against BCCI, resullting in the imposition of penalty on them, in terms of section 13(1) of FEMA 1999. c) Out of the remaining noticees in this SCN, charges were found established against (i) Shri Lalit Kumar Modi (ii) Shri N.Srinivasan and (iii) Shri M.P.Pandove. The role played by Shri M.P. Pandove The remittance of US$ US$ 1,03,62,799.42 was done as per the transfer request made by Shri M.P. Pandove. The relevant A-2 Form for this transfer was signed by him. The amount involved in the SCN is linked to this remittance of US$ US$ 1,03,62,799.42. Thus, the charge against Shri Pandove was proved and established, resulting in the imposition of penalty on him, in terms of section 13(1) of FEMA 1999. x) XII. SCN. No. T-4/16-B/SDE/R/2011 (SCN-XII) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ventions alleged as required under Section 16 of FEMA read with Rule 4(4) of Adjudication Rules. ii) The Adjudicating Authority did not even consider the Appellant s request for certain clarifications in relation to the contraventions alleged, including in particular as to the nature of transaction) iii) The Adjudicating Authority also did not consider/grant the Appellant s request for furnishing copies of certain specified documents referred to in the Complaint but not furnished. iv) The Adjudicating Authority also rejected the Appellant s request for giving time for producing documents. 14. Thereafter, BCCI received the Impugned Order dated 31st May, 2018 passed by the Adjudicating Authority levying a total penalty of INR 82,66,54,000/- on BCCI. The BCCI has now challenged the impugned order inter-alia as under:- (i) The Order is patently as it does not deal with the basic aspect about the transactions in question as it relate to the IPL-2 and are only pertaining to current account transactions only. (ii) Out of 11 SCNs, in 3, the discharged order was passed. The penalties have been levied i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords Capital Account Transaction . Thus, the Applicant had no occasion to deal with these allegations in its reply or to respond to such allegations in its oral/ written submissions. b) The test for determining whether a transaction is a Capital Account Transaction is whether the Applicant has acquired any asset or advantage for the enduring benefit of its business. The Impugned Order does not hold the Applicant guilty of acquiring any such asset or advantage in South Africa. Thus, the Adjudicating Authority s finding that the impugned remittances are Capital Account Transaction is erroneous. c) The Impugned Order erroneously holds that the Applicant purportedly incurred a contingent liability , since no budget was prepared. The Applicant submits that the occurrence of IPL-2 was not uncertain. It was merely the quantum of expenditure that was to be incurred that was uncertain. Further, the Impugned Order provides no particulars of the alleged contingent liability incurred by the Applicant. In fact, the Impugned Order does not even specify the alleged contingency i.e. the specific trigger event. Thus, a mere uncertainty of quantum of expenditure does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Hosting Agreement, the Applicant merely had the contractual right to insist upon approval and audit of expenses incurred by CSA to avoid unnecessary expenditure. Further, all payments to third party vendors in South Africa were made directly by CSA under the CSA Hosting Agreement. Thus, the Adjudicating Authority has erred in holding that the Applicant (a) opened and maintained the CSA Pty Ltd IPL SA account in South Africa; and (b) made payment to third party vendors in South Africa. 17.2 Show Cause Notice Nos. VII and VIII: With reference to Show Cause Notice Nos. VII and VIII, the Adjudicating Authority has erred in holding that the transactions impugned in the Complaint would attract the provisions of Section 6(3)(d) of FEMA as they amount to borrowing and/or lending transactions. The Applicant submits that despite borrowing and lending being a legal concept that necessarily requires a loan agreement to be in place, which would specify the interest payable, term period, instalments etc. for the loan, neither the Complaint nor the Impugned Order contains particulars of the purported loan agreement impugned in Show Cause Notice Nos. VII and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere delayed repatriation is not sufficient to attract penalty under Section 8 of FEMA read with Regulation 3 of the Repatriation Regulations, as the Applicant took all reasonable efforts to repatriate the said amounts. 17.5 Show Cause Notice No. XI: With reference to Show Cause Notice No. XI, the Applicant submits that the Adjudicating Authority has failed to appreciate that the amount of USD 10,363,799.42/- constituted the Applicant s valid earnings in foreign exchange from revenue generated in South Africa by sale of tickets and VAT refund in relation to IPL-2.This amount was repatriated to the Applicant s EEFC Account through normal banking channels. 18. It is submitted on behalf of BCCI that the levy of penalty is illegal as the Adjudicating Authority has erred in proceeding to levy penalty on the Applicant on the basis that the IPL-2 event was a device to remit funds abroad. 19. BCCI submits that this allegation/finding, apart from being unsustainable, is vague and ought to be rejected on the ground that there is no allegation, much less a finding of any amount being siphoned away or misappropriated by any party/indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) signed copies of records of his own cross-examination held on 12th March, 2018 by advocates for Mr. Lalit Modi as well as records of cross-examinations of other individuals conducted in the Adjudication Proceedings. c) copies of all emails/correspondence/documents which were shown to him during his cross-examination, along with the relevant certificates under Section 65-B of the Evidence Act, 1872, where applicable. 21.2 It is submitted that the first personal hearing in the matter, after formation of Purported Opinions under Rule 4(3) of the Adjudication Rules, was held only on 7th May, 2018, which was the appropriate time for the Appellant to file such an application. Therefore, the question of delaying the proceedings does not arise as that was only the appropriate stage. However, the Adjudicating Authority did not at any stage even consider the Applicant s letter dated 4th May, 2018, for withdrawal of the Call Notice insofar as it called for a last and final hearing, thereby violating Rule 4(9) of the Adjudication Rules, as well as basic principles of natural justice and fair play. 21.3 On merit, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, merely technical in nature. c) It is submitted that the quantum of penalty of ₹ 9.72 crores levied on the Applicant is excessive and the Applicant does not have the economic wherewithal to deposit such a large sum of penalty. The requirement to deposit the penalty at the time of filing the Appeal will cause the Applicant genuine financial hardship. It is further submitted that Income Tax Return Verification Forms of the Applicant for 2015-16, 2016-17 2017-18 ( ITRs ) are annexed as Annexures 1 to 3 to the Application (Page 305-307/Volume III). The ITRs demonstrate that the Applicant s income after tax is around 15 to 18 lakhs per annum. It demonstrates prima facie that the applicant does not have the economic wherewithal to pre-deposit the penalty amount of ₹ 9.72 crores. d) It is submitted that the Respondent, in its reply dated 29th January, 2019 to the application filed by the Applicant, has claimed that the Applicant ought to submit his asset/ liability statement to justify his request for dispensation with deposit of penalty. It is submitted that if deposit of the penalty amount, on the Respondent s own case, requires liquidati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IPL Chairman held a very responsible position with regard to the conduct of IPL in South Africa and also exercised control over the remittances made by BCCI to CSA against these bills and invoices . . the findings are factually incorrect (assuming without admitting for the sake of argument that such findings are correct), yet the same are not sufficient to fasten vicarious liability on a person in view of the above judgment in case of K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48. 22.5 The respondent has been a trying to urge that, as if, BCCI had created any legal entity in South Africa by the name of IPL SA Pty Ltd. It is submitted that BCCI has taken a firm stand that no such entity was created by the BCCI in South Africa. It was evident from the cross examination of the complainant himself that no entity by the name of IPL SA Pty Ltd was ever created. In terms of the agreement dated 30/03/2009 CSA was to maintain a dedicated bank account for the IPL. This dedicated account was Account Number: 420948619. This account was an account of CSA Pty Ltd that is Cricket South Africa Pty Ltd and not of IPL SA Pty Ltd and no such entity by the name of IPL SA Pty Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remittances were made in accordance with the agreement dated 30/03/2009, all remittances were Current Account Transactions however without there being any legal basis, the impugned order concludes that it was a Capital Account Transaction whereas the RBI had not pointed out any such infraction and was of the opinion otherwise, the communications of the RBI were suppressed and request to cross-examine the concerned officer of the RBI was rejected without assigning any reason. 22.10 As far as the individual noticees are concerned, it was alleged that if Mr Shashank Manohar has been exonerated of all liability, is it possible to impose any vicarious liability on any other individual noticees? It is undisputed factual position that the working committee of the BCCI in its meeting dated 22nd March 2009 took the decision to hold IPL 2 outside India, the working committee left it to Mr Shashank Manohar to decide the venue and Mr Srinivasan was required to draft an appropriate resolution regarding opening of Bank account. Mr Shashank Manohar in his cross examination admits that he had decided the venue of South Africa for IPL 2. It is clear from the email dated 24/03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid amount of foreign exchange by BCCI, the copy of the Agreement entered into by and between BCCI and CSA, alongwith all the relevant documents required for the purpose, including the relevant declarations were made available by BCCI to the SBT at Jaipur. On examining the documents furnished and after fully satisfying that the remittances of the concerned amounts of foreign exchange were quite legal and proper, the SBT through the communication issued under the purported signature of its Jaipur Branch s the then Chief Manager, Shri Nazeer Khan permitted transfer and remittances of the requisite foreign exchange. In the humble submission of the appellants, it is to be appreciated that remittances effected in this case could not be considered as unlawful and illegal contravening the provisions of FEMA, Rules and Regulations there-under on the part of the Appellant Bank and that the appellants are not liable for the misuse of Foreign Exchange by BCCI, if any, after its remittance legally from India as per section 10(6) of the Act. Consequently the appellant bank cannot be called upon to tender any explanation for such alleged misuse of foreign exchange either by the BCCI or its m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er that the Authorized Person shall not engage in any foreign exchange transaction, which is not in conformity with the terms of his authorization under the said Section 10. Similarly, the provisions of sub-section (5) of Section 10 imposes certain restrictions on the Authorized Person, providing that before undertaking any foreign exchange transaction for its Customers, the Authorized Person should secure from its Customers such Declaration and to give such information as will reasonably satisfy him that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the FEMA or Rules and Regulations framed there-under. There is no allegation of violation of any specific general/ sepcial direction or order issued by the RBI. Further, the Bank remitted the amount after fully satisfying itself that there is no illegality involved in the transaction. The circulars referred to and relied upon in the Show Cause Notice is an omnibus document running into 27 pages. A true copy of the said Circular No. 11 dated 16.05.2000 is filed as Annexure-I. It is not stated/ alleged as to which particular part of that circular has been contravened by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an Authorized Dealer in Foreign Exchange, was legally entitled to deal in Foreign Exchange business under Section 10(1) of FEMA. Accordingly, the erstwhile SBT allowed the above remittances by BCCI to CSA, since the said remittances were falling under the category of Current Account Transactions, as provided under Section 5 of FEMA, r/w. Entry No. 9 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000. 23.5 The Adjudicating Authority thus failed to appreciate that IPL 2009 conducted in South Africa was sponsored by BCCI and it is a sports activity hosted abroad by it, as clearly contemplated under the above-said Entry No. 9 of Schedule II. Hence, Entry No. 9 is quite relevant and directly applicable to the sports activity organized abroad by the BCCI, which is a National Level Sports Body and thus it is exempted from obtaining approval from Ministry of Human Resource Development (Department of Youth Affairs and Sports). 23.6 Before effecting the remittances, it took all the necessary precautions as provided in the Law, by securing all the relevant documents such as the Agreement, A-2 Forms and Declarations fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants has referred the following decision - a. The Hon ble Supreme Court in the case of Vinod Solanki vs. Union of India reported in 2008 (16) SCC 537 has held as follows :- 36. A person accused of commission of an offence is not expected to prove to the hilt that confession had been obtained from him by any inducement, threat or promise by a person in authority. The burden is on the prosecution to show that the confession is voluntary in nature and not obtained as an outcome of threat, etc. if the same is to be relied upon solely for the purpose of securing a conviction. 38. In the instant case, the investigating officers did not examine themselves. The authorities under the Act as also the Tribunal did not arrive at a finding upon application of their mind to the retraction and rejected the same upon assigning cogent and valid reasons therefor. Whereas mere retraction of a confession may not be sufficient to make the confessional statement irrelevant for the purpose of a proceeding in a criminal; case or a quasi-criminal case but there cannot be any doubt whatsoever that the court is obligated to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent totally failed to answer this aspect in his findings recorded in the Impugned Order. Therefore, there is no valid justification for imposition of penalty. 23.11 It is alleged that the action of the Appellant in allowing remittances by BCCI cannot be considered as an act done deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligations. It is rather other way round. Had SBT Officer A. K. Nazeer Khan refused to remit Foreign Exchange as desired by the BCCI, despite furnishing to the Bank all the legally mandated documents by BCCI, then RBI would have taken legal action against SBI for their failure to discharge the licit Banking Business, and the Bank would have exposed itself to a charge of negligence by its client i.e. the BCCI, under the provisions of Consumer Protection Ac, 1986. It is the sacred duty of the banks to honour and carry out all just and legal instructions issued by the client. 24. EVIDENCE OF WITNESSES NOT SUBJECTED TO CROSS- EXAMINATION, CANNOT BE RELIED UPON In the case of Bareily Electricity Supply Company Ltd. Vs. The Work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove the charges beyond reasonable doubt that the Appellant contravened the provisions of FERA, 1947. It was unequivocally ruled that though the provisions of the Indian Evidence Act, 1872 is not applicable to the Adjudication proceedings, the Director of Enforcement, as a Quasi-judicial Authority while holding a person guilty of contravention of any of the provisions of the said 1947 Act, obliged to follow the rules of Evidence. Here in this case, the Respondent violated all canons of law while passing the Impugned Order. 27. Mr. Rajeev Awasthi, learned counsel for respondent has supported the impugned order in toto. He has also made the submission about roles played by BCCI/IPL officials IPL SCNs issued. a) Shri Lallit Kumar Modi- The then IPL chairman and also Vice- President of BCCI. Role played: The concept of IPL was first mooted and discussed in the BCCI forums by Shri L.K.Modi. Thus, he is considered as the brain child of IPL. IPL was formed as a sub-committee of BCCI. In the working Committee meeting of BCCI held on 13.9.2007, Shri Lalit Modi was appointed as the first Chairman of IPL. The first IPL was staged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to CSA in terms of this agreement. Shri Prasanna Kannan, the then Manager, Business Commercial IPL and Shri Sunder Raman, the then COO of IPL, in their respective statements given before the Deptt had stated that all the invoices/bills/ vouchers etc for the payment to different vendors and other individuals in South Africa were finally verified and approved by Shri N. Srinivasan, which were then sent by him to the Treasurer for making the necessary remittances. Shri M.P Pandove, the then Hon. Treasurer of BCCI in his statement given before the Deptt had also stated that the instructions to make the payments to CSA was received by him from Shri N. Srinivasan and as per these instructions all the receipts and payments were made by him; that as per the decision of the IPL governing council and working committee, the BCCI had transferred the money on the strength of authorization of the IPL chairman and approval by the Hon. Secretary; that debit note regarding the final settlement of the account after getting the approval from the governing council was forwarded by him to the Secretary, and on the basis of the same, the final remittance was made. d) Shri M.P.Pandove T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expeditiously as possible and in any event by 31st of May 2018. It was also observed by the Hon ble Court that no extension would be granted in any circumstances. The Adjudication Authority in due compliance of the above direction given by the Hon ble High Court of Bombay, had allowed the cross-examination of the witnesses as per details given above and also concluded the Adjudication proceedings by passing the Adjudication Order bearing No. Adj/04-15/B/SDE(VA) /WR /2018/FEMA dated 31.05.2018. 30. As per the order dated 30.01.2018 passed by the Hon ble Bombay High Court, Cross-examination of the following co-noticees were conducted by the Advocates of Shri Lalit Modi:- (i) Shri Shashank Manohar - 05.03.2018 (ii) Prof. Ratnakar Shetty 05.03.2018 (iii) Shri Prasanna Kannan 05.03.2018 (iv) Shri Chirayu Amin 08.03.2018 (v) Shri Sunder Raman 08.03.2018 (vi) Shri M.P.Pandove 12.03.2018 (vii) Shri N. Srinivasan 12.03.2018 (viii) Shri A.K.Nazeer Khan (Chief Manager, SBT) 21.03.2018 31. Following the Principle of Natural Justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of the Order dated 30.01.2018 passed by the Hon ble Bombay High Court, wherein, it was observed by the Hon ble Court that due to pendency of the Writ Petition filed by Shri Lalit Modi, the adjudication proceedings were pending from more than two years since August 2015 and hence, direction was given by the Hon ble High Court in the said Order to conclude the adjudication proceedings by 31.05.2018. Discussion and findings 32. Whether Adjudicating Authority can ignore to issue Show Cause Notice about inquiry under Rule-4 of FEM (Adjudication Proceedings and Appeal) Rules, 2000 Rule 4 of Foreign Exchange Management (Adjudication Proceedings and Appeals) Rules, 2000 mandates that for the purpose of adjudication, whether any person has committed any contravention, the Adjudicating Authority is to issue a Notice in terms of Rule 4 to such person requiring clear from a bare reading of the Rule. Show Cause Notice to be issued is not for the purpose of making any adjudication into alleged contravention, but only for the purpose of deciding whether an inquiry, if at all is to be held against him or not. As per scheme of the Act and Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of the notice for personal hearing, the recorded reasons are sought for by the noticee, the same should be given .This would only result in fair procedure which would be in consonance not only with Rule 4 of the Adjudication Rules but with principles of natural justice. 34. Shri Amit Sibal, Senior Advocate (who appeared for Mr. Pandove) submits that the impugned order suffers from fatal procedural irregularities and has been passed in violation of the basic principles of natural justice as the Applicant was not given a reasonable opportunity to be heard, as envisaged under Section 16(1) of FEMA. His client Mr. Pandove was given only two working days to prepare his defence as the Call Notice dated 24th April, 2018 (which called for a last and final hearing in the matter on 7th May, 2018) was received by the Applicant only on 2nd May, 2018. It was also the first personal hearing post the Rule 4(3) stage. It appears from record that the ED s Call Notice dated 24th April, 2018 received on 2nd May 2018). His client issued a letter to ED dated 4th May, 2018 to follow the procedure envisaged under Rule 4(4) of the Adjudication Rules. It is contended by the senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and his responses to such opportunities are given in detail in Para 11.1 to 11.19 of the Impugned Order. 38. It is stated ample opportunities were granted to Shri Pandove to defend his case and he had availed these opportunities by filing various written and oral submissions through his advocates in the course of adjudication proceedings. Therefore, the submission made by the Advocates of Pandove that no sufficient time or opportunities were given to him in contesting his case, is devoid of merit and also factually incorrect. The Adjudication proceedings were concluded and the Adjudication Order was passed on 31.05.2018, to comply with the direction given by the Hon ble Bombay High Court. 39. In view of submission made by Mr. Sibal, this Tribunal is of the view that the Adjudicating Authority prima facie as a principle of equity and parity in the conduct of the Adjudication Proceedings since the Applicant was not provided the opportunity to cross-examine the Complainant and/or individuals whose statements have been referred to and/ or relied upon in the Complaint, which opportunity was provided to Noticee No. 2 (Mr. Lalit Modi) (as per court order). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter be decided by 31st May, 2018, but at the same time, it was observed that Rules be followed. Section-42 of FEMA 41. The appellant has been saddled with the vicarious liability under section 42 (1) of FEMA. In case of Shashank Manohar reported as 2014(1) Mh.L.J 838. and N. Srinvasan reported as 2018 SCC Online Mad 4828 the Hon ble Bombay High Court and Madras High Court respectively had dealt with the definition of a person as defined in section 2 (u) of FEMA and have concluded that BCCI is a person within the above definition. 42. The word person in section 2 (u) of FEMA has been defined as under: Section 2 (u) person includes- (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and (vii) any agency, office or branch owned or controlled by such person; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in Writ Petition No. 5305 of 2013 dated 7/8/2013( Shashank Vyankatesh Manohar V/s Union of India and another) holding that the definition of person in section 2(u) of the Act, which judgment has also been confirmed by the Supreme Court, the petitioner, who was the Secretary of BCCI during the relevant period, cannot once again agitate the same issue before this Court. Therefore, this Court, being bound by the judgments, finding no merits whatsoever in the Writ Petition, is not inclined to interfere with the impugned proceedings. Accordingly, this writ petition stands dismissed. No costs . He referred Para 6 of the order. 47. Therefore, it is submitted by Mr. Awasthi that the issue regarding the status of BCCI as a Company is settled through the aforesaid judgments passed by the Division Bench of the Hon ble Bombay High Court in the matter related to the Writ Petition No. 5305 of 2013 dated 07.08.2013 filed by the Shri Shahshank Manohar and also in the matter related to the Writ Petition 2815 of 2016 filed by Shri N. Shrinivasan before the Hon ble Madras High Court. 48. It is also submitted by Mr. Awasthi that the penalties imposed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in light of the judgment of the Hon ble Apex court reported K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48 wherein the Hon ble Apex court had held: 22. Section 141 uses the words was in charge of, and was responsible to the company for the conduct of the business of the company . (emphasis supplied) It is evident that a person who can be made vicariously liable under sub-section (1) of Section 141 is a person who is responsible to the company for the conduct of the business of the company and in addition is also in charge of the business of the company. There may be many Directors and secretaries who are not in charge of the business of the company at all. The meaning of the words person in charge of the business of the company was considered by this Court in GirdhariLal Gupta v. D.H. Mehta [(1971) 3 SCC 189 : 1971 SCC (Cri) 279] followed in State of Karnataka v. Pratap Chand [(1981) 2 SCC 335 : 1981 SCC (Cri) 453] and Katta Sujatha v. Fertilizers Chemicals Travancore Ltd. [(2002) 7 SCC 655 : 2003 SCC (Cri) 151] This Court held that the words refer to a person who is in overall control of the day-to-day business of the company. This Court pointed out that a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in (1977 CRI L.J. 1821), the Hon'ble Calcutta High Court has held as follows :- Therefore, in order to be made vicariously liable the Petitioner must be shown to have been a person who was in charge of or was responsible to the company for the conduct of the business of the company. This provision of the Act fell for consideration by the Supreme Court. As to the meaning of the person in charge and responsible for the conduct of the affairs of the company in the case of Giridharlal Gupta v. D.N. Mehta, AIR 1971 SC 2162, the Supreme Court held that the director simpliciter as such cannot be said to be the person who was in charge of and was responsible to the company for the conduct of its business. The Supreme Court came to that conclusion having regard to the provisions of the Act, especially in view of sub-sec. (2) of S.23-C of the Act. [FERA 1947) Having regard to the averments made in this case, which I have set out hereinbefore, and in view of the said decision of the Supreme Court, it must be held that the petitioner as such, on the allegations made in the show cause notice, cannot be proceeded against by the impugned notice. b) In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been subjected to action. That is why even in case of a person holding the position of a managing director, he will not be liable if he had no knowledge of the contravention when the contravention took place or if he had exercised all due diligence to prevent the contravention of the Act. The liability is thus cast on persons who had something to do with the transactions complained of. d) In Girdhari Lal Gupta v. D. N. Metha (AIR 1971 SC 2162), the Apex Court observed that a person in-charge must mean that the person should be in overall control of the day to day business of the Company or Firm and that Section 23(1) of Foreign Exchange Regulation Act, 1973 (pari materia with Section 42 of the Act) is a highly penal Section since it makes a person vicariously liable for an offence committed by the person and therefore, it must be strictly construed. Paras 5, 6, 7 and 9 are reproduced hereinbelow: 5. It seems to us quite clear that S.23C (1) is a highly penal section as it makes a person who was in -charge and responsible to the company for the conduct of its business vicariously liable for an offence committed by the company. Therefore in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te (1977 CRI L. J. 1325) Hon'ble Allahabad High Court - Lucknow Bench was pleased to observe at Para 6 of the judgment as follows:- 6. Regarding offences by firms, reference should be made to S.10 of the Essential Commodities Act and Sec. 34 of the Drugs and Cosmetics, which say that every person, who was in charge of the conduct of business of the firm shall be deemed to be guilty besides the firm itself. It would not be fair to convict all the partners of the firm, because there is always possibility that the partners firm may not even be knowing what is really going on in the firm. 56. Section 42(2) of FEMA reads as follows:- 42. Contravention by companies: (1) . (2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitted by all parties, but only an Association registered as a Society. Prima facie, there is force in the submission of learned counsel appearing on behalf of appellant nos. 2 to 11 and it appears that at this stage, being an important legal issue, the same is left for argument at the final hearing of appeals. 60. BCCI is included as a person within the meaning of Section-42 of the Act and if contravention provisions of the Act. At the best, at present BCCI may be asked to pre-deposit the penalties on their behalf at this stage without prejudice till the said important legal issue is finally decided. 61 . Whether the funds transferred by BCCI to the CSA account was in the nature of Capital Accounts Transaction or Current Account Under the scheme of FEMA more specifically section 5 of FEMA all current account transactions are permissible save and except for the once which have been restricted by the Central Government . The Central Government has framed The Foreign Exchange Management (Current Account Transactions) Rules 2000 in this regard. It is not the case of the respondent or of the Adjudicating Authority that any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers in the working Committee had agreed to the aforesaid request made by Shri Lalit Modi. Thus, the BCCI and its officials/office bearers were fully seized with the legal requirement of obtaining the permission from RBI before opening a bank account abroad, to defray the expenses proposed to be incurred in South Africa, in the conduct of IPL-2 in South Africa. However, despite of being aware of this requirement, no follow up actions were taken by BCCI and its concerned officials to open any bank account in South Africa in the name of BCCI with the permission of RBI , and instead, the BCCI had entered into an agreement with CSA on 30.03.2009, in which, it was stipulated that, all the remittances towards the conduct of IPL-2 in South Africa would be first made by BCCI to the account of CSA, and thereafter, these amounts would be transferred to a dedicated bank account to be opened by CSA. The said agreement also ensured that the proposed dedicated bank account to be opened by CSA for and on behalf of BCCI would be controlled absolutely by BCCI. Necessary clauses were incorporated in the agreement to ensure that BCCI would exercise and enjoy absolute control in the operation of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the transfer of funds made by CSA to this account, which were funded out of remittances received by them directly from BCCI. Similarly, there was no dispute raised by the Noticees regarding the funds credited in this account, originated from various source of revenues related to the conduct of IPL2 in South Africa. The funds credited debited into/from in this dedicated bank account formed the subject matter of charges in some of the SCNS. In this regard, it was the point of contention of the advocates of Shri Lalit Modi that there was no account titled as IPL (SA) Pty Ltd and hence, any contraventions associated with transactions made in this titled account would be null and void. Similar objections were also raised by BCCI and other Noticees regarding the title of this account. The fact of the matter is that, notwithstanding the slight difference in the title of the bank account under reference, there was no dispute either regarding existence of account No. 420948619 or the transactions associated with this numbered A/c, which precisely is the subject matter of charge in the SCNs. It is also an admitted fact that the said account was the dedicated bank account opened by CSA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69. NO PENALTY FOR VENIAL BREACH OF LAW The Supreme Court has reiterated the said principle in the case of Hindustan Steel Ltd. vs. State of Orissa reported in 1969 (2) SCC 627 and held as follows:- 8. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligations. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that in any event both the authorities under the said Act erred in not specifically considering the question of propriety of imposing penalty in the facts of the case. Decisions are legion in support of the proposition that penalty will not be imposed in quasi-criminal proceedings merely because it is lawful to do so. Whether penalty should be imposed or not is a matter of discretion to be exercised judicially and on a consideration of all the relevant circumstances. In this connection reference may be made to the decisions in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457 (SC) , and in Cement Marketing Co. of India Ltd. v. Asst. CST AIR 1960 SC 346. There was no such consideration in this case at all. . 71. It is a settled legal proposition that the penal statutes have to be strictly construed and an interpretation favouring the accused has to be preferred. Constitution bench of the Hon ble Supreme Court has in the case of Tolaram Relumal v. State of Bombay, (1955) 1 SCR 158 has observed as under: 8. The question that needs our determination in such a situation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court, therefore, concluded the principle to mean: the concept simply is that, when two or more cooffenders are to be sentenced, any significant disparity in their sentences should be capable of a rational explanation. 73. In nutshell, it is evident from the record that there is no subsidiary in the name of IPL SA Pty Ltd, which is the principal charge, as alleged in the Show Cause Notices. The BCCI or any official have not deposited any amount whatsoever in relation to the IPL-2 organized, despite of admission in cross-examination of the witnesses. However, still adjudicating authority in the impugned order persuaded on the basis original allegation mentioned, the order was passed as the accounts were operated. i) In the impugned order, the findings are arrived that the transactions,, in question were Capital Account Transaction, though there is no such allegation in the Show Cause Notices. From the entire gamut of the matter, it is difficult at this stage to conclude that nature of transaction, it was Current Account transaction. Prima facie, the facts and circumstances speak otherwise, as it is admitted by Mr. Awasthi tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him for appropriation of any amount in the entire event of IPL-2 held in South Africa. One is failed to understand how the penalty of ₹ 9,72,00,000 is imposed upon him and how he would be able to pay the said penalty. No valid justification is mentioned whatsoever given in the impugned order. Even the appellant no. 3 has been able to establish his financial hardship vii) In the light of above, prima facie, it appears that the penalty imposed on other appellants is also very excessive and without application of mind. 74. It is true that the respondent has made many allegations of malpractices. But the cases are not decided on the basis of allegation. In the final order, the matters are to be decided on the basis of fact, evidence and legal issues on record. The assumption, presumption and perception have no place in the statute, particularly, when the statute is a Special Act. Without expressing any final conclusion on the issues raised by the appellants, as mentioned above and without prejudice, this Tribunal is of the view that the stay applications filed by the appellants are disposed of with the following directions:- i) With ..... X X X X Extracts X X X X X X X X Extracts X X X X
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