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TMI Blog2020 (1) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 ), Dashmesh International Ltd. California (incorporated on 19.05.2000) & Dashmesh International Music S.A., South Africa (incorporated on 15.12.1999), through its Wholly Owned Subsidiary (WOS) Dashmesh International Ltd., Mauritius (DILM) without the permission of the RBI. 3. The appellant company acquired the shares of DILM on 13.03.2001. The DILM had acquired the entire equity in the two American Step-down subsidiaries on 22.08.2001 & the South Africans step-down subsidiary on 01.08.2001. The investment made by DILM in the step down subsidiaries during the period of May, 2001 to February, 2002. 4. In the list of dates & events filed by the appellant company, it is stated that the appellant company filed an application in form ODA (for investments in DILM to the RBI on 07.06.2001 and RBI granted clearance by letter dated 22.11.2001. Thus, even when there application was pending with the RBI, the appellant company through its WOS (DILM) made further investment totaling US $ 7,54,100 in the three step-down subsidiaries. 5. Following are the main contention of the appellant:- (i) That DILM was engaged in International Trading in blank and pre-recorded audio cassettes and CD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.07.2005, by its letter, the Reserve Bank of India accorded its approval to the Company's application for closure of the WOS and advised the Company to surrender the holding licence, if issued, and to produce evidence of repatriation of a sum of AED 2,24,095.22 towards realizable equity investment. 6. On the other hand, the Legal Consultant appearing for the Respondent contended the following:- (i) That the appellant contends that the technical lapses were noticed only when the Company approached the RBI for conversion of loan to equity, however it is pertinent to note that the appellant herein has hidden vital facts from the RBI. It is seen that while obtaining initial permission from RBI, the appellant was exchanging correspondence with RBI on 20.08.2001, 14.09.2001 and 30.10.2001 but still the Appellants refrained from divulging the information of the acquisition. The appellant only after a delay of two years informed RBI on 20.09.2003 whereas they were aware vide permission granted to them on 22.11.2001, that prior approval needs to be sought for the transactions. (ii) On a combined reading of Section 6(3)(a) with Regulation 5, 6 & 13 of Foreign Exchange Management and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rector of Enforcement, 2017 (356) E.L.T. 193 (Del.) * Bata India Ltd. vs. The Special Director, Enforcement of Directorate, New Delhi, 1996 SCC OnLine Cal 93. (iii) Without prejudice, the quantum of penalty imposed on the Appellant Company ought to be proportionate to the alleged contravention * Chairman, SEBI vs. Shriram Mutual Funds, (2006) 5 SCC 361 * Jaipur IPL Cricket (P.) Ltd. vs. Special Director, Enforcement Directorate, Mumbai MANU/AE/0001/2017 (iv) No penalty ought to be levied on Mr. Kumar S. Taurani (Chairman and Managing Director) of the Appellant Company. * Umesh K. Modi vs. Deputy Directorate of Enforcement 2014 (3) JCC 2028 * SMS Pharmaceuticals Ltd. (I) vs. Neeta Bhalla (2005) 8 SCC 89 * Saroj Kumar Poddar vs. State (NCT of Delhi) (2007) 3 SCC 693 * In Kavita Dogra vs. Director of Enforcement (2014) 182 Com Cas 376 and National Small Industries Corporation Ltd. vs. Harmeet Singh Paintal (2010 3 SCC 330) 8. The relief(s) claimed by the appellant are as follows: (i) quash and set-aside that the Impugned Order as the same is bereft of reasons for holding the Appellant guilty of the alleged contraventions of FEMA and Regulations, 2000 and is ex-fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation: - For the purpose of determining the 'total financial commitment' within the limit of 100% or as decided by the Reserve Bank from time to time, of the net worth the following shall be reckoned, namely: (a) Remittance by market purchases namely in freely convertible currencies; in case of Bhutan, investment made in freely convertible currencies or equivalent Indian Rupees, in case of Nepal investments made only in Indian Rupees; (b) Capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11; (c) Hundred per cent. of the value of guarantees issued by the Indian party to or on behalf of the joint venture company or wholly owned subsidiary; (d) Investment in agricultural operations through overseas offices or directly; (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines; (f) Fifty per cent. of the value of performance guarantee issued by the Indian party to or on behalf of the JV/WOS. Explanation.- In cases where invocation of the performance guarantees of breach the ceiling for the financial exposure of 100 per cent., or as decided by the Reserve Bank from time to time, of the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India) Regulations, 2000; (ii). drawal of foreign exchange from an authorised dealer in India shall not exceed 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian Party as on the date of last audited balance sheet; Explanation: - For the purpose of the limit of 100%, or as decided by the Reserve Bank from time to time, of the net worth, the following shall be reckoned, namely-: (a) cash remittance by market purchase; (b) capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11 and 12; (c) [hundred per cent of the amount of guarantees] issued by the Indian party to or on behalf of the Joint Venture company or Wholly Owned Subsidiary; [Explanation.-An Indian Party may offer to a person resident outside India any form of guarantees, that is, corporate or personal/primary or collateral/guarantee by promoter company in India/guarantee by group company, sister concern or associate company in India, provided that: (a) total 'financial commitment' including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party and (b) no guarantee is 'ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Approval Route, provided the Indian Party indirectly holds 51 per cent, or more stake in the overseas subsidiary for which such guarantee is intended to be issued. (iii) The Indirect resident individual promoters of the Indian Party may issue personal guarantee on behalf of the overseas JV/WOS of the Indian Party provided the provisions under regulations 6 are fulfilled by the Indian Party and further provided that- (a) total 'financial commitment' including all forms of guarantees within the overall ceiling stipulated for overseas investment by an Indian party; and (b) no guarantee is 'open ended'. (iv) with prior approval of the Reserve Bank, an Indian party may undertake financial commitment without equity contribution in JV/WOS provided it is as per the business requirement of the Indian party and also as per the legal requirement of the host country. (v) Compulsorily Convertible Preference Shares (CCPS) shall be treated at par with equity shares and the Indian party is allowed to undertake financial commitment based on the contribution to JV by way of CCPS. (5) An Indian Party may make direct investment without any limit in any foreign security out of the proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval to the aforesaid investments made in further step-down subsidiaries, for that the quantum of penalties imposed are disproportionate, for that the appellant Mr. Kumar S. Taurani (Chairman & Managing Director) of the appellant company should not have been penalised. 12. During the course of the argument the learned counsel for the appellant has drawn the attention to the letters of RBI dated 18.04.2003 and 14.10.2003 addressed to the appellant company. The appellant's are heavily relying on the RBI letter dated 14.10.2003 to substantiate their case to that the RBI has granted post approval to the aforesaid investment made by the appellant company in the step-down subsidiaries. On perusal of the said letter nowhere it is mentioned that the RBI has approved the said investment rather it is mention that "we observe that the WOS in Mauritius acquired subsidiaries in USA and South Africa without prior approval and the fact that such acquisition were made was not brought out in your initial application made in December, 2002 for consolidation of your business. Your inability to provide satisfactory clarifications on the method of acquisition has also been noted. We advise that recurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day-to-day affairs of the company. Therefore, it is held that the Adjudicating Authority has rightly made Mr. Taurani responsible for the said contraventions and imposition of penalty. 15. It is further contended by the learned counsel for the appellant company that the quantum of penalty imposed are not proportionate to the alleged contravention. The Section 13 of the FEMA, 1999 provides the provision for the imposition of penalties. The said provisions reads as follows:- 13. Penalties.- (1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable. ............................................................................. In the aforesaid provision it is provided that if any person contravened any provision of this act or contravened any rules, regulation, notification, direction or order issued in exercise of the powers under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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