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2025 (5) TMI 1141 - AT - FEMAWaiver of condition of pre deposit u/s 19 of FEMA - contravention of section 6(3)(f) of FEMA - HELD THAT - Proceeding for imposition of penalty under different legislation is not affected by section 14 of the Act. Thus prima facie we are of the view that the plea raised by the appellant in reference to section 14 is not tenable. It is more so when the order passed by NCLT Kolkata has been stayed by the NCLAT. In any case we have expressed our view on the effect of section 14 to these proceeding where the impugned order was passed even much prior to the moratorium under section 14 of the IBC. So far as alleged discrepancies with reference to the Regulation are concerned we do not find prima facie much substance in the argument of the appellant because show cause notice was issued referring to the Regulation applied by the respondent i.e. Foreign Exchange (Deposits) Regulation 2000. Thus we do not find any discrepancy in referring the provision applicable to the case. The reference of a wrong provision does not affect the order if facts available on record make out a case for valuation of the Regulations applicable to the case. The appellants have otherwise not shown any financial crunches to deposit the amount of penalty for maintaining the appeal. However taking overall view we are of the opinion that it would be appropriate to direct the appellants to deposit only 25% of the penalty amount to satisfy the condition of pre-deposit so that there remains no hardship on the appellants to pursue the appeal and with the aforesaid the application is disposed of. The order would be satisfied by the appellants within three weeks of its pronouncement and subject to satisfaction of the condition of pre-deposit appeal may be heard.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Waiver of Pre-Deposit Condition under Section 19 of FEMA The legal framework mandates a pre-deposit of penalty amount as a condition precedent to filing an appeal under section 19 of FEMA. The appellants sought waiver of this condition on various grounds including pendency of insolvency proceedings and alleged errors in the imposition of penalty. The Tribunal noted that the penalty imposed was substantial (Rs. 20 crores on the company and Rs. 3.6 crores on the Managing Director) for contravention of section 6(3)(f) of FEMA read with Regulation 3 of Foreign Exchange (Deposits) Regulations, 2000. The appellants did not sufficiently establish financial hardship to justify waiver. However, considering the overall circumstances, the Tribunal exercised discretion to reduce the pre-deposit to 25% of the penalty amount to balance the interests of justice and enable the appeal to be heard without undue hardship. Issue 2: Effect of Moratorium under Section 14 of IBC on FEMA Proceedings The appellants contended that the moratorium imposed under section 14 of the IBC by NCLT/NCLAT barred any proceedings against the company, including under FEMA, and thus pre-deposit should be waived or proceedings stayed. The Tribunal held that the moratorium under section 14 of IBC does not automatically stay or bar all proceedings against a corporate debtor. It emphasized that penalties under FEMA are regulatory and civil in nature, not criminal or debt recovery proceedings. The Tribunal relied on authoritative precedents including the Apex Court's ruling in a consumer protection penalty case, which distinguished regulatory penalties from debt recovery and held that moratorium does not stay such penalties. Furthermore, the impugned penalty order was passed prior to the moratorium, and the appeal was filed before the moratorium was imposed, thus the moratorium could not retrospectively affect the proceedings. The Tribunal concluded that the plea based on section 14 IBC moratorium lacked merit and did not warrant waiver of pre-deposit or stay of proceedings. Issue 3: Impact of Omission of Section 6(3)(f) of FEMA by Finance Act, 2015 The appellants argued that since section 6(3)(f) of FEMA was omitted effective 15th October 2019 without any saving clause, the penalty proceedings initiated prior to the omission should not continue or should be stayed. The Tribunal observed that the initiation of proceedings occurred prior to the amendment and thus the omission does not affect the jurisdiction or validity of the penalty proceedings. The Tribunal noted relevant High Court precedents which held imposition of penalty after omission to be without jurisdiction but distinguished the facts here. The issue was reserved for final adjudication during appeal hearing. Issue 4: Discrepancy in Reference to Applicable Regulation (2000 vs. 2016) The appellants contended that the show cause notice initially referred to Regulation 3 of Foreign Exchange Management (Deposits) Regulation, 2016 but later alleged contravention of Regulation 3 of Foreign Exchange (Deposits) Regulation, 2000, creating inconsistency and procedural irregularity. The Tribunal found no substance in this argument. It held that the show cause notice and penalty order clearly referred to the Regulation of 2000 which was applicable to the case facts. The Tribunal emphasized that misnaming or erroneous reference to a regulation does not vitiate the order if the facts disclose contravention of the correct regulation. The Tribunal rejected the plea of discrepancy as a ground for waiver of pre-deposit. Issue 5: Merits of Alleged Contravention under Section 6(3)(f) of FEMA The appellants submitted that no contravention occurred as the payment of Rs. 23.6 crores was not made by them but between two foreign companies, and therefore section 6(3)(f) was not violated. The Tribunal noted that the payment was made on behalf of the appellant company, and held that what cannot be done directly cannot be done indirectly. Thus, prima facie, the allegation of contravention stood on a reasonable basis. However, the Tribunal clarified that this was not a final finding and the issue would be examined in detail during final hearing of the appeal. Issue 6: Financial Hardship and Waiver of Pre-Deposit The appellants did not demonstrate any financial hardship or inability to make the pre-deposit. The respondents contended that both appellants were financially sound. The Tribunal noted the absence of any credible plea of hardship and accordingly did not find merit in waiver of pre-deposit on this ground. 3. SIGNIFICANT HOLDINGS The Tribunal made the following key determinations and legal pronouncements:
Accordingly, the Tribunal directed the appellants to deposit 25% of the penalty amount as pre-deposit within three weeks to enable the appeal to be heard, while clarifying that observations made were prima facie and not final adjudications on merits.
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