TMI Blog2005 (9) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... g in imported gold in India. According to the appellant such a company could be established only with prior permission of the Reserve Bank of India under section 29(1)( a ) of the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as "FERA" only) but it was established without any permission. It is alleged that the respondents adopted automatic approval route and established this company by filing Form FC(RBI) representing that this company was covered by Annexure III list whereas it was being established for trading only and the automatic approval route was not available to it in terms of Notification No. 180 of 1998 (RBI), dated 13-1-1998, issued by the RBI. 3. According to appellant in Form FC(RBI), dated 21-5-1998, respondent No. 2, Maple Leaf Trading International, the newly incorporated company did not declare that it was a trading company and would mainly make exports. It was also alleged that the company had ensured 100 per cent equity in the hands of the foreigners as 51 per cent of its shares were issued to respondent No. 4, a foreign company, on 20-5-1998, and 49 per cent shares were issued to Indian shareholders which were kept firstly with Shri V.S. Jaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t disclosing that its main object was trading in gold coins. A misleading statement was made in Form FC(RBI) that the activities of the company were covered by the "NIC code 893" which related to "Business Management Consultancy for trading, marketing and selling of goods and services". Under column VIII(3) it was declared that the company was a trading company primarily engaged in exports. According to the appellant respondent No. 2 never intended to undertake any activity relating to consultancy and their only aim was to trade in Maple gold coins in India which they started in violation of Notification No. 180 of 1998 and as such, violated the provisions of section 29(1)( b ) and section 19(1)( a ) of the FERA, 1973. According to the appellant not only that respondent Nos. 2 to 4 established a foreign company without permission of RBI, allotted the shares of the company to a foreign company, i.e., respondent No. 4 without permission of RBI in violation of sections 19(1)( a ) and 29(1)( a ) read with section 68(1) and section 30(1) of the Act, they also violated the RBI guidelines by opening bank accounts with respondent No. 1-ABN Amro Bank, which also violated section 6(4) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmission was required for transfer of the equity or its holding by foreign nationals. It was held that the company having been incorporated as per Notification No. 180 of 1998 was covered by the automatic approval route and had complied with the conditions mentioned in paragraph 3 of the notification. It was also held that respondent No. 4 was a foreign company, and its functionaries who were foreign nationals had acted in good faith and bona fide belief on legal advice tendered to them by the experts in India and had not violated any provision intentionally. It was also held that if at all the company had contravened any of the provisions of the Act it had acted in good faith only and their activities were lawful. It was held that the respondents had no intention to commit breach of laws. Regarding respondent No. 1-ABN Amro Bank also it was held that there was no bar under the Act or the RBI guidelines for opening an account in any company and so far as the import of gold was concerned the bank was importing gold on its own behalf. It was held that the sale of the gold by respondent No. 1 to respondent No. 2 was against Indian currency and as such provisions of section 6 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never remitted any dividend to foreign investor, i.e., respondent No. 4, there was no violation of the Notification No. 180 of 1998. 9. It is pointed out that till January, 1998, prior clearance from RBI was required for issue of shares of such company to foreign investors but thereafter, only the requirement was that company should make a report within 30 days of the issuance of the shares. It is submitted that a newly set up company cannot already have on going exports and it can start exports only after its establishment and as such mere issuance of equity cannot be a violation of the FERA. The object of Notification No. 180 was to encourage exports and attract foreign exchange in the country. It is stated that in July, 1999, when respondent No. 2 was shut down it was in the process of increasing its exports and had already exported goods worth about Rs. 43 lakhs. It was also having firm export orders of the value of Rs. 8.21 crores and further orders in regard to leather goods, etc., were in the pipeline. Learned counsel for respondent Nos. 2 to 4 submits that even if respondent No. 2 had not exported anything after its incorporation it could not be held liable for violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard Shri P.P. Malhotra, senior advocate, learned ASG for the appellant, Shri Amit Sibal, advocate for respondent Nos. 2 to 4 and Shri J.S. Arora, learned counsel for respondent No. 1. 13. It is true that under section 54 of the Foreign Exchange Regulation Act, 1973, an appeal against an order of the Appellate Board lies only on a question of law but learned ASG has argued that the impugned order passed by the learned Appellate Tribunal is contrary to law inasmuch as section 59 of the FERA was completely ignored. It is submitted that the learned Appellate Tribunal without adverting to section 59 of the FERA, which enjoins upon the Courts to presume the existence of a culpable mental state on the part of the accused for the commission of an offence under the Act, the Tribunal proceeded to set aside the orders passed by the adjudicating authority on the ground that respondent Nos. 2 to 4 had no culpable intention. He draws the attention of this Court to observations made by the Appellate Tribunal in paragraphs 12, 13, 15, 16, 26 and 28 of the impugned order. According to him this erroneous approach of the Appellate Tribunal raises a question of law and calls upon this Court t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged by the appellant. Learned Appellate Tribunal did not chose proper words while considering this question but it is found that on the basis of facts and circumstances brought on record only the learned Appellate Tribunal was trying to find out as to whether the respondents had rebutted or not the presumption against them under section 59 of the Act. In view of the discussions made by learned Appellate Tribunal in regard to culpable mental state of the respondents and findings arrived in respect thereof, no question of law has been raised in this appeal as the findings given by the Tribunal were findings of facts only based on material on record. No finding was arrived at upon mis-interpretation of law nor any issue was perversely decided. On this ground itself, this appeal is liable to be dismissed as it raises no question of law. 15. The adjudicating authority vide its order dated 22-9-2000, had held that respondent No. 2 was established in India without permission of the RBI, shares of the company were allotted to respondent No. 4, a foreign company, respondent No. 3 opened bank account in violation of the RBI guidelines and remitted money to his own country and resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and management consultancy activities as per Annexure III. 17. Learned ASG submits that not only a foreign company managed to establish its 100 per cent subsidiary, respondent No. 2, in India for a purpose which was not permissible under the automatic approval route, out of 20,000 shares, only 20 shares were registered in the names of Shri Anil Bhalla and Shri Rajesh Sethi and 9,780 shares of the value of Rs. 100 each, were given to Mr. Jaffa on payment of Re. 1 per share only. On 19-5-1998, the shares of Anil Bhalla and Rajesh Sethi were purchased by Mr. Cliff Roy, managing director of respondent No. 2 and a representative of respondent No. 4 and remaining 9,780 shares were kept with one A.R. Khan, an Indian national under an agreement which provided that these shares were to be passed on to respondent No. 3 and Mr. Cliff Roy, who were not residents of India. 10,200 shares were sold to respondent No. 4, a company established in Switzerland. According to him, this company was established by foreign nationals in a clandestine manner and in violation of the provisions of the FERA. Form FNC 2 or FNC 3, which are prescribed for trading activities were never filled up by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication was also moved on 24-8-1998, and was pending. According to him, no misleading statement was made in Form FC(RBI), no funds were trans-ferred by the respondents to a foreign company and FNC 2 or 3 were not required to be filled up as respondent No. 2 was not a foreign company. He refers to the press notes dated 20-8-1991, and 31-12-1991, and the Notification No. 180 of 1998 and the RBI circulars dated 7-4-1997, and 20-1-1998, to argue that till some dividend is remitted to a foreign investor, no violation of the FERA is made out. According to him, the dividend could be sent to foreign investor if the company was registered as an export house for which also, sometime was required to develop exports, get registration as an export house and earn profits for remittance thereof to foreign investors. He also submits that the letter dated 28-10-1997, written by Cliff Roy to Anil Bhalla speaks of exports from India. The letters dated 9-1-1998, 13-1-1998, 15-1-1998, and the project report attached with the FIPB form also mentioned that respondent No. 2 was proposing to undertake exports from India. He submits that if respondent No. 2 had no intention to undertake exports, this corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the FERA in purchasing gold from respondent No. 1. It is submitted that the price of gold supplied by respondent No. 1 to respondent No. 2 was paid in Indian currency and no foreign exchange was sent out of India through respondent No. 1. No foreign currency was ever deposited with respondent No. 1 and respon-dent No. 1 was importing gold not on behalf of respondent No. 2 but on its own behalf for which it had RBI permission. 21. A perusal of the material on record and the impugned orders passed by learned Appellate Tribunal clearly reveals that respondent No. 2 was incorporated in India. Even if it was established at the instance of foreign company respondent No. 4, there was no violation of the FERA, as the amending Act of 1993 had lifted restrictions on foreigners to establish such a company. The Notification No. 180 of 1998 permitted foreign investments up to 51 per cent in a trading company primarily engaged in exports. Such a trading company was not required to fill up Form FC(RBI) in terms of sub-clause ( viii ) of clause (3) of Notification, unless it was engaged in any of the activities mentioned in Annexure III. Respondent No. 2 had never tried to conceal that its 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions or respondent No. 2 clear that it wanted to do exports from India. Actual exports might or might not have taken place but there remains no doubt that respondent No. 2 was established in India not only for the purpose of trading but for the purpose of exports also and as such it was fully covered by Notification No. 180 of 1998. These findings of fact given by appellate authority were, therefore, fully justified and warranted and as such, cannot be interfered with by this Court. 23. In Form FC(RBI) in which respondent No. 2 had ticked NIC code 893 to say that the company was engaged in business management consultancy, there was no need to tick the column regarding trade as the same was permitted by Notification No. 180 of 1998 and was not an existing business of respondent No. 2. In FIPB application, respondent No. 2 had disclosed that its existing business was management consultancy but it was proposing to undertake trading in gold as well as exports of various products. FNC 2 or 3 or 4 were not applicable to respondent No. 2 as it was a company incorporated in India in terms of Notification No. 180 of 1998, which permitted foreign investments up to 51 per cent in such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and prevent its outflow. In this case, respondent Nos. 2 to 4 appear to have done nothing to offend section 76 of the FERA as no dividend was declared or remitted to foreign investors. The opening of the bank accounts also by respondent No. 3 and others with respondent No. 1 was not in violation of section 30 of the FERA inasmuch as they being the employees of respondent No. 2, could open such bank accounts and repatriate part of their earnings to their respective countries for the maintenance of their families in view of Act 29 of 1993 which amended section 30(1) of the FERA. There is no allegation that any dividend was remitted by respondent No. 2 to respondent No. 4, a foreign company, which had made investments in respondent No. 2. 25. Section 47(1) of the FERA was also not violated for the reason that, respondent No. 2 was a trading company which had plans to export. Actual exports could not be done from day one and in some cases, exports might not even take place for a variety of reasons but that does not mean that it can be held that the company never intended to undertake exports from India and was here for the purpose of trading only. 26. It is also shown on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No. 2 was purchasing gold in India and selling it also in India. Both the transactions were through Indian currency. Since respondent No. 2 was a company incorporated in India and was not a foreign company, respondent No. 1 was under no obligation to refuse a deal with it. It has been found that respondent No. 2 was a trading company which was to undertake exports also from India. Respondent No. 1, therefore, had not breached any provision of the FERA. Respondent No. 1 had no material to suspect that respondent No. 2 was in violation of the FERA or any rule or notification thereunder and as such, the sale of gold to it was not prohibited. The transfer of funds on behalf of Cliff Roy and Paul Singh Claire was also not in violation of section 30 of the FERA for the reason that after the amendment of section 30 of the FERA the bar imposed on foreign nationals to take up employment in India had been removed and they were permitted to repatriate funds for the maintenance of their families. However, the adjudicating authority even had exonerated respondent No. 1 of this charge and as such, it is a non-issue. 28. In the result, this Court is of the considered view that in the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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