2025 (5) TMI 1139 - AT - FEMA

Violations of provisions of Sec. 3(a) of FEMA 1999 - illegal unaccounted foreign currency possed without dealing through an authorized person or reporting to the Reserve Bank of India (RBI) - as contented person to whom the payment was made in India had made purchases in India itself As contented that appellant has not made contravention of Section 3(a) of FEMA - HELD THAT - As appellant could not give proper explanation for taking the foreign currency allegedly from the hundies of the church to the place of recovery and thus these facts points towards his mala fide intention and taking a false afterthought defence. Hence the seized foreign currency equivalent to INR 3, 30, 82, 775.28 is unaccounted foreign exchange dealt by the appellant other than through an Authorised Dealer and thus contravention of Section 3(a) of FEMA, 1999 is made in the present case. Thus the above said foreign currency equivalent to Rs3, 30, 82, 775.28 is rightly confiscated by the Adjudicating Authority under Section 13(2) of FEMA along with imposition of penalty of Rs. One lakh. Payment of Rs 13, 09, 000/- (equivalent to USD 22, 000) to Mr Cody an NRI who had come to India for attending meetings held by the Trust was for the purpose of purchase of watches . The payment was made to him in Indian currency and utilised by him for the purchase of a watch in India itself and thus the same was not taken outside India - Mr. Cody is a person resident outside India and the records show that the Income Tax Department had seized a receipt for payment of USD 22000 issued by M/s Television Broadcasting Legacy USA. The execution recovery of receipt is an admitted fact and hence its contents for payment in USD cannot be denied. The payment made by the appellant to Mr Cody is without the permission of the RBI. Also there is no authority letter issued by M/s Television Broadcasting Legacy USA authorising Mr. Cody to receive the payment in cash. Hence there exists clear violation of Section 3(b) in the case at hand and the penalty of Rs. 10, 000/- imposed upon the appellant for violation of Section 3(b) for the amount of USD 22000 is justified. The present appeal is dismissed hereby being devoid of any merits and thereby the order passed by the Adjudicating Authority is hereby upheld.

Summary

The core legal questions considered in this case are:

1. Whether the appellant, a person resident in India, contravened Section 3(a) of the Foreign Exchange Management Act, 1999 (FEMA) by illegally possessing foreign currency equivalent to Rs. 3,30,82,775.28 without accounting for or depositing it through an authorized dealer.

2. Whether the appellant violated Section 8 of FEMA read with Regulation 6A of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2000, by failing to repatriate and surrender foreign currency balances held in foreign bank accounts within the prescribed 180-day period after becoming a resident Indian.

3. Whether the appellant contravened Section 3(b) of FEMA by making a payment in Indian currency equivalent to USD 22,000 to a person resident outside India without prior permission of the Reserve Bank of India (RBI).

4. Whether the confiscation of the seized foreign currency and imposition of penalties under Section 13(1) and Section 13(2) of FEMA were justified.

5. Whether procedural irregularities occurred in the adjudication process, specifically regarding the formation of opinion under Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.

Issue-wise Detailed Analysis

1. Contravention of Section 3(a) of FEMA for illegal possession of foreign currency

Legal framework and precedents: Section 3(a) of FEMA prohibits any person from dealing in or transferring foreign exchange except through authorized persons or with RBI permission. The Act mandates that foreign exchange dealings must be transparent and regulated. The Adjudicating Authority is empowered under Section 13(1) to impose penalties for contraventions and under Section 13(2) to order confiscation of contraband foreign currency.

Court's interpretation and reasoning: The appellant claimed that the foreign currency was received as donations and offerings through registered charitable trusts under the Foreign Contribution Regulation Act (FCRA), which is governed by the Ministry of Home Affairs (MHA) and not RBI. He contended that the foreign currency was kept in hundis (donation boxes) at church premises and that proper accounts were maintained and returns filed under FCRA. He argued that the foreign currency was not dealt with or transferred to any unauthorized person, hence no contravention of Section 3(a) occurred.

The Court examined the appellant's statements and found that he admitted to receiving foreign currency offerings since 2007 but maintained no proper books of account for these foreign currency receipts. The seized currency was found not in donation boxes but in his personal possession at residence and bank lockers, and was not deposited in any authorized bank account. The appellant failed to provide evidence of timely deposit or accounting of the foreign currency with any authorized dealer or RBI.

The Court rejected the appellant's contention that the foreign currency was received only within the 180-day period prior to seizure, noting that the appellant's account statements for the period August 2013 to February 2014 were fabricated to cover the seized amounts within the limitation period. The absence of detailed records such as contributor names, dates, and venues further undermined the appellant's defense.

Application of law to facts: The appellant's failure to account for or deposit the foreign currency with an authorized dealer constituted a clear contravention of Section 3(a) of FEMA. The possession of unaccounted foreign currency without RBI permission was illegal. The confiscation of the seized currency under Section 13(2) was therefore justified.

Treatment of competing arguments: The appellant's argument that the currency was held by a registered FCRA trust and thus exempt from RBI regulation was rejected because the seized currency was in his personal possession and not in trust accounts. The Court emphasized that holding foreign currency outside authorized channels, regardless of source, violates FEMA.

Conclusion: The appellant was held liable for contravention of Section 3(a) of FEMA, and confiscation of the foreign currency and imposition of penalty of Rs. 1,00,000/- were upheld.

2. Contravention of Section 8 of FEMA and Regulation 6A of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2000

Legal framework: Section 8 of FEMA and Regulation 6A require a person resident in India who holds foreign currency accounts opened while a non-resident to repatriate and surrender the foreign exchange balances to an authorized person within 180 days of becoming a resident.

Court's reasoning: The appellant admitted to holding joint foreign bank accounts in USA and Dubai opened during his non-resident period (2000-2004). Upon return to India in 2004, he became a resident. The balances in these accounts as of early 2014 amounted to AED 1,28,145.84 and USD 2,32,065.52 (approx. Rs. 1.62 crores). The appellant failed to repatriate and surrender these funds within 180 days as required.

The appellant contended that he was still a non-resident due to holding a US Green Card and employment abroad, and thus Section 8 was not applicable. However, the Court found that the appellant had established residence in India and was a person resident in India for FEMA purposes. The failure to repatriate was therefore a violation.

Application of law to facts: The appellant's failure to repatriate and surrender the foreign exchange balances within the prescribed period constituted contravention of Section 8 of FEMA and Regulation 6A.

Treatment of competing arguments: The appellant's claim of non-resident status was rejected based on the facts of his residence and activities in India. The Court did not find merit in the contention that income tax returns filed abroad exempted him from FEMA obligations.

Conclusion: The charge under Section 8 was dropped by the Adjudicating Authority due to insufficient records, and the Court did not disturb this finding.

3. Contravention of Section 3(b) of FEMA for payment to a person resident outside India

Legal framework: Section 3(b) prohibits a person resident in India from making payments to a person outside India except through authorized channels or with RBI permission.

Court's reasoning: The appellant paid Indian currency equivalent to USD 22,000 to Mr. Cody, a person resident outside India, for services rendered by a US-based company. The appellant contended that payment was made in India in Indian currency and was not remitted abroad, and that the bill was only denominated in USD.

The Court observed that the receipt for USD 22,000 was seized and that no authorization was obtained from RBI for the payment. The payment was made to a person resident outside India, and no evidence was produced to show that the payment was for local expenses or that the recipient was authorized to receive such payment in India.

Application of law to facts: The payment without RBI permission constituted a contravention of Section 3(b) of FEMA.

Treatment of competing arguments: The appellant's argument that the payment was only a technical breach and that the amount was minimal was rejected. The Court found the penalty of Rs. 10,000/- imposed to be justified.

Conclusion: The penalty for contravention of Section 3(b) was upheld.

4. Confiscation and penalty imposition under Section 13 of FEMA

Legal framework: Section 13(1) authorizes imposition of penalty for contravention of FEMA provisions, and Section 13(2) empowers confiscation of foreign currency involved in contravention.

Court's reasoning: Given the appellant's admitted possession of unaccounted foreign currency and failure to deposit or repatriate, confiscation of the seized currency was lawful. The penalties imposed were proportionate to the violations.

Treatment of competing arguments: The appellant argued that confiscation was illegal as the currency belonged to the charitable trust and was seized prematurely within the 180-day period. The Court rejected this, noting the appellant's failure to maintain proper accounts and the seizure from his personal possession, not trust premises.

Conclusion: Confiscation and penalties were upheld.

5. Procedural compliance under Rule 4(3) of the Adjudication Rules

Legal framework: Rule 4(3) requires the Adjudicating Authority to form an opinion whether inquiry is required before proceeding with adjudication.

Court's reasoning: The appellant contended that the Adjudicating Authority failed to form and communicate such opinion before initiating inquiry, violating procedural safeguards as per Supreme Court and High Court precedents.

The Court noted the appellant's submissions but found no sufficient evidence that this procedural lapse caused prejudice or vitiated the proceedings. The detailed inquiry and opportunity to respond were afforded to the appellant.

Conclusion: No procedural infirmity was found sufficient to overturn the adjudication.

Significant Holdings

"The seized foreign currency equivalent to INR 3,30,82,775.28 is unaccounted foreign exchange dealt by the appellant, other than through an Authorized Dealer, and thus, contravention of Section 3(a) of FEMA, 1999 is made in the present case."

"The appellant was neither declaring the foreign currency received by him, nor depositing the same with any Authorized Dealer since 2007-08."

"The confiscation of the seized foreign currency under Section 13(2) of FEMA is justified as the currency is the subject matter of contravention."

"The payment of Indian currency equivalent to USD 22,000 to a person resident outside India without RBI permission is a clear violation of Section 3(b) of FEMA."

"The appellant's contention that the foreign currency was received by a registered FCRA trust and hence exempt from RBI regulation is rejected as the currency was found in his personal possession and not accounted for in trust books."

"The appellant's failure to maintain proper books of accounts and to deposit or repatriate foreign exchange within prescribed time periods demonstrates mala fide intention and non-compliance with FEMA provisions."

"No procedural infirmity in the adjudication process was found to vitiate the order."