TMI Blog2019 (8) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 and Para 9 (1)(A) of schedule 1 to the foreign Exchange Management (Transfer or issue of Security by a person Resident outside India) Regulation, 2000 - imposition of penalties. HELD THAT:- It is not open to the Respondent to invoke Section 42 (1) of FEMA and impose penalty on individuals on the sole basis that such individuals held the position of directors in the respective companies. It has been consistently held by the Hon ble Supreme Court and various High Courts that specific findings are required to be recorded against any individual sought to be penalized under the deemed liability provisions such as Section 42 (1) of FEMA, particularly as to their specific role and function in the company. The mere fact that individuals are directors in a company cannot be the sole basis for imposition of penalty upon such individuals under Section 42 (1) of FEMA. Test for determination. The present case is not a case where it can be concluded or any benefit of doubt is given to the appellants for automatic route. The present case cannot be compared with another case of sport event, as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated against the Appellants under FEMA have not been complied with by the Respondent while imposing the exorbitant penalty of INR 98.35 Crores vide the Impugned Order - there are contraventions happened due to bona fide or not by the appellants and it is also settled law that the plea of mens rea cannot be accepted if contraventions have happened as it is not a valid ground to ignore the offence of committed. Still there are cases where one can conclude the said contraventions are ex facie technical and venial in nature. As far as the imposition of penalty is concerned, the appellants have already deposited a sum of ₹ 15 crores with the respondent as consolidated amount on behalf of all the appellants as a pre-deposit - Considering the overall facts and circumstances, the appeals are partly allowed by modifying the order by holding that penalties already deposited by the appellants is reasonable and the same be treated as penalties imposed in the present set of appeals. Appeal disposed off. - MP-FE-327/MUM/2018 (Stay) In FPA-FE-9/MUM/2013, MP-FE-328/MUM/2018 (Stay) In FPA-FE-10/MUM/2013, MP-FE-329/MUM/2018 (Stay) In FPA-FE-11/MUM/2013, MP-FE-330/MUM/2018 (Stay) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Para 8 and Para 9(1)(A) of Schedule I of TISPRO for R-1, R-2 and R-3 10/2013 Ranjit Barthakur 6.40 Upon the company being held in breach, penalty imposed under S. 13(1) r/w S. 42(1) of FEMA 11/2013 Raghuram Iyer 5.10 Upon the company being held in breach, penalty imposed under S. 13(1) r/w S. 42(1) of FEMA 12/2013 Fraser Castellino 6.40 Upon the company being held in breach, penalty imposed under S. 13(1) r/w S. 42(1) of FEMA 13/2013 EM Sporting Holdings Ltd. (EMSH) 18.90 Reg. 5 of PCAT and Para 8 of Schedule I of TISPRO for R-1, R-2 and R-3 14/2013 Bishwarnath Bachun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution by the Hon ble Supreme Court in Board of Control for Cricket in India v. Cricket Association of Bihar , (2015) 3 SCC 251. 6. In 2008, IPL was an entirely new sports model and entities were required to make investments into the said nascent venture, unaware of the challenges involved and unclear about the future of the business. 7. As per the Invitation to Tender ( ITT ) floated by BCCI, bids were invited for eight franchises which would participate in the IPL. The bidding process was as follows: a) Indian as well as foreign bidders were permitted to bid for the said franchises; b) for the first three years, the franchises were to be operated by the successful bidders through a company incorporated in India; c) pertinently, the Appellants were the sole foreign entities to bid for the franchises and the same had also been duly recorded by BCCI; d) at the time of making the bids, the bidders, including the Appellants, were not aware whether their bids would be declared successful and therefore had not set up the franchise owning company; e) as a condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll remittances were made into India through normal banking channels. The bona fides of the Remitters which made the remittances is undisputed, and there is no allegation whatsoever regarding the financial integrity or legitimacy of the source of funds of the remitters. 10. The remittances were received by BCCI (as applicable) and a franchise was awarded against the same to Jaipur IPL Cricket Private Limited ( JIPL ). It has been eleven years since, and there have been no further questions raised on the issue surrounding the Remittances. The Rajasthan Royals have been duly participating in the IPL season. 11. It is case of appellants that the appellants bid in respect of the Rajasthan Royals franchise as legitimate and successful, after due scrutiny of all the information and proposed investment structure as furnished along with the bid. 12. It is not in dispute that the remittances in question have been made into India and have continued to remain in India. There has been no refund of such amounts to the investors. The Remittances, which are to the quantum of approximately INR 33 crores, have been brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-issuance of shares within 180 days of receipt of Remittances is also not an absolute contravention, as Para 8 Schedule I of the TISPRO clearly states that in case the shares are not issued within 180 days, then the amount of inward remittance shall be refunded back to the investors concerned. 20. The Appellant in Appeal No. FPA/FE/09/2013, JIPL, is the Indian company, which is the owner of the Rajasthan Royals ( RR ) IPL cricket franchise. The Appellant in Appeal No. FPA/FE/10 of 2013, Mr. Ranjit Barthakur is presently a director of JIPL. The Appellant in Appeal No. FPA/FE/11 of 2013, Mr. Raghuram Iyer became a director in October, 2008 and resigned from the directorship in 2016. The Appellant in Appeal No. FPA/FE/12 of 2013 (Mr. Fraser Castellino) was the director of JIPL till October, 2008. 21. The Appellant (EMSH) in Appeal No. 13/2013 is the Mauritius holding company established by the Promoters ( hereinafter defined ) through which they hold their interests in JIPL which in turn owns the Franchise. The Appellants in Appeal Nos. 14, 15, 16 of 2013 (Mr. Bishwanath Bachun, Ms. Savila Sivaramen, Ms. Barabara Jaqueline Haldi, respectively) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 8 successful bidders were awarded the locations as per their bid. The bid by M/s. Emerging Media IPL Limited, U.K., who submitted a bid of US$ 67 Million (₹ 268 crores) for Jaipur was declared successful bidder on 24.01.2008. The amount of ₹ 268 crores was to be paid over a period of 10 years in 10 equal installments. The franchise for Jaipur location was named as Rajasthan Royals and the franchise agreement for this signed between appellant, M/s. Jaipur IPL Cricket Pvt. Ltd. (JIPL) and BCCI. Mr. Fraser Castillino, the then CEO, JIPL signed the agreement on behalf of JIPL on 02.04.2008 and Mr. Lalit Modi, Vice President of BCCI and Chairman of IPL, signed the agreement on behalf of BCCI on 14.04.2008. 22.3 It was found from the details furnished by BCCI that in the case of JIPL the performance deposit was transferred from U.K. to the account of BCCI/IPL with HDFC Bank, Chennai. The copies of Foreign Inward Remittance Certificates (FIRCs) forwarded by BCCI also revealed that the amount of GBP 25,82,026.72 equivalent to ₹ 19,81,18,910.23 and GBP 50,000 equivalent to ₹ 38,68,500/- were respectively transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.05.2008 from M/s. ND Investments, LLP, U.K., appellant Manoj Badale which were shown as foreign direct investment in India in equity as per the copies of FIRCs issued by Axis Bank, Mumbai. 22.4 The statement of Ranjeet Barthakur, Director of JIPL were recorded on 15.01.2010 and 20.01.2010 who stated that he along with appellant Manoj Badale, who is a resident of U.K. with Indian origin wanted to promote cricket in India and submitted bid of franchise in January 2008 for the IPL, which was submitted by M/s. EMIPL, U.K. The tender deposit money of US $5 Million was remitted by appellant, Manoj Badale to BCCI after the successful bid for Rajasthan Royals. The balance deposit was paid to BCCI by M/s. EMSH, Mauritius and as it was imperative to set up an Indian company for signing franchise agreement with BCCI. He along with Mr. Fraser Castillino formed JIPL on 08.03.2008 in which both were 50% shareholders. The paid up capital of the company was ₹ 1 lakh. The company was to support appellant, Manoj Badale as per the requirements of IPL. He further stated that out of the 5000 shares held by him, 4990 shares were sold to M/s. EMIPL, U.K., and the shares have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... caused to the exchequer in India. 28. Admittedly, the investors who made the Remittances, have not received any shares having beneficial transferable interest against the huge undisputed inflows and neither any sort of security against the huge payments has been furnished. 29. It is the BCCI who invited tenders to own and operate teams in Indian Premier League ( IPL ). Mr. Manoj Badale, Mr. Suresh Chellaram and Mr. Lachlan Murdoch ( Promoters ) decided to bid for the said auction. As per clause 2.3 of the Invitation to Tender ( ITT ), any global entity could participate in the bidding process with the precondition that the operating company, for the first three years, should be located in India. Further, as per Clause 7.1, the bidder was required pay USD 5 million as a performance deposit to BCCI at the time of placing the bid in order to be considered as an eligible bidder. All such payments have been made into India and have been spent in India for a specified purpose and a purpose duly acceptable to all. The money sent and the support provided in the form of a franchise was an investment into a nascent industry. Such support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased IT services and outsourcing business, which trades as Agilisys in the UK, Ireland and India. Currently, he chairs TDX group (financial services in the UK and Spain), and his passion for cricket led him to promote Emerging Media (UK and Indian cricket sports rights), both of which he co-founded. He is also a non-executive director of Agilisys, BMS Finance Limited, Corporate Pay Limited, and Market Clusters Limited, in all of which Blenheim Chalcot holds a significant equity stake. Manoj Badale is also involved in various charitable activities. He is chairman of the British Asian Trust (part of the Prince s Charities organisation), and of the prince s Charities Events Ltd., as well as chairman of operation Smile UK, and a trustee of the Charity Technology Trust. 31. As already mentioned above, the details of following three Remittances, which were made through normal banking channels, from identifiable remitters. a) Emerging Media (IPL) Ltd. ( EMIPL ) placed a bid for an IPL team franchise as per the Invitation to Tender norms laid down by BCCI. The regulations made it mandatory for any bidder to qualify to plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination in the present set of Appeals are the following: a) Whether there has been a breach/contravention of the provisions of FEMA and Regulations made thereunder as invoked against the Appellants? In case the Tribunal was to hold in the affirmative, whether the breach/contravention of the provisions of FEMA and Regulations made thereunder are technical/venial in nature? b) Whether in the facts of the present case and in view of the law as declared by the Hon ble Supreme Court, imposition of any penalty was justified on the companies in question? In case the Tribunal was to hold in the affirmative, what is the quantum of penalty liable to be imposed on the companies in question which can be considered proportional to the gravity of the alleged breach? c) Whether in the facts of the present case and in view of the law as declared by the Hon ble Supreme Court, imposition of any penalty was justified on the individuals, in question, in purported exercise of powers under Section 13(1) read with Section 42 of FEMA? In case the Tribunal was to hold in the affirmative, what is the quantum of penalty liable to be imposed on the indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... false as there is no violation in the present case, the submissions on facts made on behalf of the appellants are outlined as under:-. a) Compliance with BCCI process: The franchise auction process was run by BCCI and allowed a group of foreign investors to bid for a franchise. The BCCI had opened and was operating an EEFC dollar and EEFC GBP account for this purpose. The Promoters followed the guidelines put forth by BCCI and remitted amounts under the firm belief that since the guidelines allowed investment by foreigners, the necessary due diligence in respect of the required payments had been done and that the regulations in respect of the remittance requirements for all concerned had been considered. The Promoters put their best foot forward in order to support BCCI in their efforts in making IPL a success. The Promoters were the foreign investors amongst the franchise owners. Pursuant to the franchise agreement between BCCI and JIPL, JIPL was required to pay a franchisee fee of USD 67 million to BCCI in 10 equal annual instalments. As per the bid requirements, the original performance deposit paid to BCCI by the bidder, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by companies which were beneficially owned by Suresh Chellaram (Tresco), Lachlan Murdoch (Bluewaters) and Manoj Badale (Emerging Media IPL Limited). The Promoters have individually submitted affidavits establishing that they are beneficial shareholders of the respective companies. Further, it has been demonstrated to the relevant authorities that each of the Promoters have sufficient means to have made the respective investments. The Promoters have come over and deposed in front of the Enforcement Directorate as and when required and have remained available. It is therefore submitted that at no point of time can there be any question in relation to tracing the relevant funds. The money was that of the individual Promoters, which were channelized through their respective investment vehicles. Additionally, as mentioned earlier, from the bid stage itself it had been envisaged that the respective investments would be routed by the Promoters through a joint venture company in Mauritius. Such a structure and manner of payment was always contemplated. 38. It is submitted on behalf of appellants that there is no contravention of any provisions as the appellants have acted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Further, from a plain reading of Paragraph 8 of Schedule I of TISPRO, it is clear that any person outside India remitting amounts towards purchase of shares can remit the consideration either through normal banking channels (i.e. through any recognized authorized foreign exchange dealer) or if he holds a NRE/FCNR account, by debit thereof. Considering all money has been received by the Appellant through normal banking channels, there is no violation of Paragraph 8 of Schedule of TISPRO. vi. RBI has provided its no-objection for issuance of shares to EMSH, even though it had not remitted the money. b) Contravention of Section 6(2) of FEMA read with Regulation 5 of PCAT: The requirements of Section 6(2) of FEMA and Regulation 5 of PCAT are identical to that of paragraph 8 of Schedule 1 of TISPRO. As is apparent from a reading of the provisions, the payment from abroad can be remitted either through (a) normal banking channels; or (b) from an account of the investor maintained with the Authorised Dealer. Thus, in so far as the money has come from a known source, through an authorized dealer and for an ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There has been no contravention of any of the provisions of FEMA by JIPL. Without prejudice, even if any contravention as alleged did not justify invocation of the penal provisions in the facts and circumstances of the present case. d) The total non-application of mind in penalising the individuals in question is fully laid bare by the fact that the individuals have been penalised for offences prior to their actually becoming a director of JIPL. In this regard, all of the alleged contraventions were prior to Mr. Raghuram Iyer joining JIPL. Remittance 1 in respect of each contravention as claimed, occurred at the time when Mr. Ranjit Barthakur and Mr. Castellino were not associated with JIPL or even RR. e) The presumption of guilt under Section 42(1) is a rebuttable presumption where the individual has to establish that they exercised due diligence. The alleged contravention may at the most be technical and venial breaches of compliance, if proved against the Appellants. The issues of compliance were the responsibility of the support staff, who had been appointed for this purpose. JIPL also worked with reputed chartered accountants viz. Price w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned with such huge penalty amounts, there ought to be some logical basis and justification which must be established from the records of the case. There cannot be sweeping and cursory observations made for slapping such penalties as has been done in the Impugned Order. Even in this regard, the case laws have been placed for the consideration of the Tribunal. Reference in this regard is made to the judgment in the matter of Umesh K. Modi v. Deputy Director of Enforcement [2014 (3 )JCC 2028]. 39. Submissions on behalf of Mr. Ranjit Barthakur (Appellant in Appeal No 10/2013): i) Mr. Barthakur is a prominent professional involved in various businesses and charitable projects. He has always been very involved and connected with cricket. He had been instrumental in organizing one of India s first limited overs tournaments and the he is therefore very well experienced and passionate about such events. ii) In light of the expertise of Mr. Barthakur, Mr. Manoj Badale, a friend of Mr. Barthakur, approached Mr. Barthakur and informed him about the opportunity arising out of the IPL tender floated by BCCI. ii) Mr. Bart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No 11/2013): i. Mr. Castellino had been involved in the information technology business and is now working in the sports marketing sector. Mr. Castellino first met Mr. Badale in July 2000 when he was hired to work for Net Decisions India (subsequently renamed Agilisys India), a company in which Mr. Badale was an investor. ii. In late 2007, Mr. Badale approached the Appellant and informed him about the opportunity arising out of IPL tender floated by BCCI. iii. Mr. Castellino agreed to be the CEO of the project, as requested for by Mr. Badale. Mr. Castellino s role as CEO was to manage the operations and marketing of the franchise s cricket team. Mr. Badale promised to arrange for the funds for the franchise as and by way of investment. iv. Mr. Castellino was aware that Promoters together bid for one of the franchises for the IPL. They placed the initial bid through EMIPL, a company in the United Kingdom in which Mr. Badale was the Chairman and sole shareholder. He became aware that, in light of the fact that the tender document required the bidder to deposit a performance deposit amount of Remitta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to that date, his sole responsibility was to generate revenue through the sale of commercial rights in connection with the cricket team and its players. On 1st October, 2008 Mr. Iyer was appointed as a director of JIPL after Mr. Castellino had resigned from his directorship. Even after being appointed a director, Mr. Iyer s main role in the organization remained the same, in that his main responsibility was for the sales and marketing activity of the company/franchise. Further, Mr. Iyer has resigned his directorship in JIPL in 2016. iii. Therefore, it is highlighted that all the respective Remittances (as defined hereinafter), took place at the time when Mr. Iyer was not a director and was neither involved nor had any view of the corporate or financial affairs of JIPL. Mr. Iyer was merely assisting with the sales and marketing of the franchise. He had no role to play in the day-to-day management of the company and was not involved with the financial or corporate functions of JIPL. Accordingly, imposing any penalty on him under section 42(1) of FEMA is completely against the tenets of law and completely unjustified. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the RBI on 28.10.2009 seeking their approval for issuing shares to M/s. EMSH, Mauritius against US$58,22,366.25 (equivalent of GBP 25,82,026.72 +GBP 50,000 +US$7,73,480.99) which was paid by Mr. Manoj Badale and M/s. EMSH, Mauritius to BCCI towards performance deposit and franchise fee. The said application dated 28.10.2009 was rejected by the RBI vide there letter dated 23.12.2009 wherein RBI informing JIPL through Axis Bank, the authorized dealer through whom the application was filed, as under :- Please refer to your letter No. AXIX/BANKW/fo3Qo/2009 dated November, 24,2009 on the captioned subject. In this connection , we advise that an Indian company receiving share subscription from a person resident outside India by mode of payment other than that indicated in Para 8 of Schedule I to Notification NO. FEMA-20/200-RB dated May 3,2000 would require the prior approval of the FIPB for issue of shares to the foreign investor. Further, capitalization of preincorporation expenses incurred by a foreign would also require the approval of the FIPB. You may, therefore, advise Jaipur IPL Cricket Limited to seek necessary approval from the FIPB for issue of shares t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be filed to the RBI in connection with the receipt of the foreign remittances has also not been filed. Mr. Awasthi says that in view thereof, now the appellants should not have any grievance about their bonafide behavior. 49. In reply to the submission made on behalf of respondent, the case of appellants about interaction with RBI and FIPB, it is submitted on behalf of the appellants that the arguments advanced by the Respondent has been that considering that the application seeking approval for issuance of shares made by the Appellants have been rejected several times and it would show from the record that the Appellants wanted to take all necessary steps to ensure compliance. The legislative scheme in relation to foreign direct investment ( FDI ) in India. Any equity investment into the country would broadly fall under the automatic route or the approval route, as set out as part of the sectoral caps in the extant FDI regulations. 50. In addition to the route, there may be additional conditions required to be fulfilled. For example single brand retail also requires a certain portion of the manufacturing of the products to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further clarification. 50.4 After reviewing all relevant documents and adequate deliberations with JIPL, RBI had provided approval on July 02, 2012 for issuance of shares for Remittance 2, subject to issuance of shares as per pricing guidelines and subject to JIPL applying for compounding. In relation to Remittance 2, JIPL applied for compounding in September 27, 2012 and received a letter of rejection from RBI dated November 09, 2012. Though the compounding had been directed by RBI, the rejection letter suggested that the acts cannot be compounded as the transactions are yet to be regularised . The Appellant submit that they have been running around in circles in trying to receive adequate direction and complete all procedures required to issue the shares. 50.5 It is submitted that the consequence for non-procurement of approval for issuance of shares (if required) is that the applicant will not be able to issue shares under the FEMA regime. Paragraph 8 of Schedule I of TISPRO stipulates that in case the shares cannot be issued for certain remittances then the amounts shall be refunded to the investors concerned. In the present scenario, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations, 2000 and para 8 of Schedule 1 thereto read with Regulation 5 of Foreign Exchange Management (Permissible Capital Account `Transactions) Regulations, 2000 issued under section 6(2) of FEMA to the extent of ₹ 23,49,27,410.23 and (ii) for the contravention of section 6(3)(b) of FEMA read with regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 and para 8 of Schedule 1 thereto and also read with Regulation 5 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 issued under section 6(2) of FEMA to the extent of ₹ 9,73,18,034/- and (iii) for contravention of section 6(3)(b) of FEMA read with regulation 5(1) of Foreign Exchange Management ( Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 and also read with para 9(1)(A) of Schedule 1 thereto to the extent of ₹ 23,49,27,410.23 and ₹ 9,73,18,034/- and (iv) Mr. Ranjith Bharthakur, Mr. Raghuram Iyer and Mr. Fraser Castellino, have been charged for the above contraventions in terms of section 42(1) of FEMA, 1999. 52. Admittedly, the SCN.II w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- (Rs. Ninety eight crores thirty five lakhs) against all the appellants namely : M/s. Jaipur IPL Cricket Pvt. Ltd., as ₹ 32,30,00,000/- (Rs. Thrity two crores thirty lakshs), Mr. Ranjit Barthakur as ₹ 6,40,00,000/- (Rs. Six crores forty lakhs), Mr. Raghuram Iyer as ₹ 5,10,00,000/- (Rs. Five crores ten lakh), Mr. Fraser Castellino as ₹ 6,40,00,000/- (Rs. Six crores forty lakhs), M/S. EM Sporting Holding Ltd., as ₹ 18,90,00,000/- (Rs. Eighteen crores ninety lakhs), Mr. BishwarnathBachun as ₹ 2,45,00,000/- (Rs. Two crores forty five lakhs), Mr. Mr. SamilaSivaraman as ₹ 2,45,00,000/- (Rs. Two crores forty five lakhs), Mrs. Barbara Jacqueline Haldi as ₹ 2,45,00,000/- (Rs. Two crores forty five lakhs), Mr. Suresh Chellaram as ₹ 3,70,00,000/- (Rs. Three crores seventy lakhs), M/S. ND Investments LLP as ₹ 2,00,00,000 (Rs. Two crores) and Mr. ManojBadale as ₹ 16,20,00,000/- (Rs. Sixteen crores twenty lakhs) respectively. 56. It is submitted on behalf of respondent that the contentions raised by the appellants are not sustainable because Special Director, Enforcement Directorate has passed the order, dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of foreign exchange despite ample opportunities given to them, which is mentioned in the Impugned order. Further, submission is that the approval of Foreign Investment Promotion Board (FIPB) is mandatory as the transaction does not fall under the automatic route. 56.1 With regard to first remittance, it is submitted that contravention of the provisions of FEMA read with FEM (Transfer or Issue of Security by a Person Resident outside India), Regulations, 2000 and FEM (Permissible Capital Account Transaction) Regulation, 2000 have been made. It is submitted that payment was not made by the Investor; Payment was not received by the person issuing the shares; Remittance was not reported within 30 days of receipt of remittance; Amount was not refunded within 180 days from the date of receipt of the inward remittance (shares not issued). It is also pointed out that the investments have been shown as Foreign Direct Investment in India in equity and the expenditure incurred were considered as preincorporation expenses being expenditure made prior to incorporation of the JIPL and were capitalized accordingly which are not under the ambit of general permission under the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was made to BCCI in spite of the legal existence of the JIPL. It is further submitted that issue of shares for payment made to any third party is not permitted under the provisions of FEMA. 57. On behalf of appellants, it is denied that the holding company of JIPL, i.e., EMSH is based out of Mauritius and it has been baselessly alleged that the entire investment has been structured to evade tax. It is submitted that such a contention has been raised with the sole purpose of causing prejudice and has no basis whatsoever. Pertinently, the corporate structure, with the holding company being proposed to be set up in Mauritius, had been duly disclosed to the BCCI at the time of submission of bids in 2008 itself. It is relevant to note that the Hon ble Supreme Court in Union of India v. Azadi Bachao Andolan , (2004) 10 SCC 1 has had occasion to consider the provisions of the Indo Mauritius Double Taxation Avoidance Convention 1983 and held that the motives with which entities are incorporated in Mauritius are wholly irrelevant and cannot in any way affect the legality of a transaction, which is otherwise required to be independently examined. Consequently, the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants. Assuming but not conceding that provisions of FEMA and Regulations made thereunder can be said to have been contravened as alleged, it is submitted that the said alleged contraventions are ex facie technical and venial in nature. While considering imposition of penalty in the present quasi criminal proceedings, the established principles of proportionality are mandatorily required to be adhered to and the exercise of discretion while determining the quantum of penalty must be fair, objective and based on relevant considerations. Such exercise of discretion cannot be based on arbitrary, vague or fanciful considerations. The Respondent in the Impugned Order has completely failed to establish that the Appellants conduct was either - in deliberate defiance of the law; or was contumacious or dishonest; or was in conscious disregard of their obligations. There is no finding whatsoever recorded in the Impugned Order to support such a contention. On the other hand, the Appellants have placed material on record to establish their bona fide conduct as the sole purpose for which the Remittances were made was to secure the Rajasthan Royals fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually the stand of automatic route was given up in view of seeking the permission twice which were rejected. d) Payment was not received by the person issuing the shares; Remittance was not reported within 30 days of receipt of remittance; Amount was not refunded within 180 days from the date of receipt of the inward remittance (shares not issued). The said fact is not denied by the appellants. e) The investments have been shown as Foreign Direct Investment in India in equity and the expenditure incurred were considered as pre-incorporation expenses being expenditure made prior to incorporation of the JIPL and were capitalized accordingly which are not under the ambit of general permission under the extant FDI policy. f) The nature of transaction would show that amount has been remitted by a person other than investor to BCCI wherein BCCI has no role to play incorporation of the JIPL nor in the issue of shares. g) The first remittance includes two transactions which is transfer of funds from Mr. Badale to BCCI and issue of share by JIPL to EMSH which are two different transaction in the eye of law. No such approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities: a) Provision for activities which are prohibited where FEMA provides for prohibition of certain activities, where the prohibition on such activities is absolute in nature and contravention thereof must be construed seriously and attract highest permissible penalty -such as Regulation 4 of PCAT and provisions under which foreign investment in agricultural sector is prohibited; b) Provision for activities which are restricted where FEMA provides for strict compliance with the laid down procedure and contravention thereof would attract lesser penalty as compared to category (a) above such as Rule 3 of Acquisition Transfer of Immovable Property Outside India Regulations, 2015; c) Provision for activities which are regulated where FEMA provides for technical compliances and contravention thereof would attract the least penalty as compared to categories (a) and (b) above such as para 8 of Schedule I of TISPRO which has been invoked against the Appellants. 60. It is a settled principle of law that even though proceedings initiated under Section 13 of FEMA do not result in criminal conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 42(1) of FEMA, so as to attract deemed liability and attract imposition of penalty. Against all individuals arrayed, the case has not been proved that they were involved in day-to-day management of JIPL or EMSH at the time the alleged contraventions took place, i.e., January June 2008. In the present case, as per the Impugned Order, penalty is imposed upon directors in the companies in a routine manner without recording any valid finding as per settled law. The penalty has been imposed on some individuals who were not even associated with the said companies at the time the alleged contraventions occurred. 63. Meaning thereby, as appeared from the present case, I am of the view that it is not open to the Respondent to invoke Section 42 (1) of FEMA and impose penalty on individuals on the sole basis that such individuals held the position of directors in the respective companies. It has been consistently held by the Hon ble Supreme Court and various High Courts that specific findings are required to be recorded against any individual sought to be penalized under the deemed liability provisions such as Section 42 (1) of FEMA, particularly as to their specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in exercise of powers under Section 13 read with Section 42 of FEMA, solely on the basis that Shashank Manohar was the President of BCCI during the relevant period and was hence in charge of, and responsible to, the BCCI for the conduct of business of BCCI. The Hon ble Bombay High Court, rejected the basis on which penalty was sought to be imposed, and held as under: 34. Since the provisions of Section 42 of the Act are in parimateria with the provisions of Section 141 of the Negotiable Instruments Act, 1881, the principles laid down by the Supreme Court in S.M.S. Pharmaceuticals Ltd. Vs Neeta Bhalla and another, (2005) 8 SCC 89 , are required to be applied to FEMA cases also . The Supreme Court has in terms held that the liability is cast on persons who may have something to do with the transaction complained of and not on the basis of merely holding a designation or office . It would depend on what role one plays and not on designation and status . Since the nature of liability and consequences cast by Sections 13 and 14 of the Act, as indicated in paragraph 16 of this judgment, are no less penal than the liability and consequences under Section 138 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion . It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision . The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company . Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status . If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of every person the section would have said every director, manager or secretary in a company is liable , etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly while imposing the penalties. Similarly, the conduct of good faith, honesty and mens rea cannot be excluded from consideration while quantum of imposing penalties. 70. In light of the parameters clearly laid down by the Hon ble Supreme Court and various High Courts regarding the standard and burden of proof required to be discharged for invocation of deemed liability under Section 42 (1) of FEMA, the imposition of penalty on all the individuals arrayed herein is liable to be set aside on account of non-compliance with the said established parameters. 71. There is no specific role discussed, as mandatorily required under section 42 of FEMA and as per the judgment in the case of Shahshank Venkatesh Manohar v . UOI Directorate of Enforcement ; ( 2013 (5) AIIMR 551; 2013 (8) TMI 435 ), as far as individual Appellants are concerned. There is no evidence brought on record, nor is there any reasoning qua the specific roles of directors, which may justify the invocation of Section 42 of FEMA, irrespective of merit of case. Therefore, in lieu of the above positions, the findings outlined in the Impugned Order are contradictory to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of any Act having force within the territory of India. Appellate Tribunal has rightly understood the situation and held that there was no other way of doing this business, which means that on truthful disclosure from time to time to Reserve Bank of India, it ought to have granted approval as done in other instances and to similarly placed business enterprises . Learned Counsel for the appellant would emphasise that in such circumstances, invariably the permission is being granted, but unfortunately, in these three instances, the same yardstick had not been applied. Evidently, realising that the appellant could not have transacted these matters otherwise, only nominal penalty had been imposed. Having conceded this point, the Tribunal was not in order in imposing even the reduced penalty . Hence, when the amounts disbursed belonged to foreign ship owners/agents, and the Tribunal having found that there was no other way of doing this business and as appellant has made timely disclosures to Reserve Bank of India, the appellant succeeds . ( Emphasis supplied ) Since there was no other way for the Appellants to participate in the bidding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the SEBI Act, 1992 and had concluded that the proceedings initiated under the relevant provisions of the SEBI Act, 1992 were neither criminal nor quasi criminal in nature; whereas the present proceedings are initiated under FEMA, which proceedings are quasi criminal in nature; - Secondly , the provision under which penalty was imposed in Shriram Mutual Fund (Section 15-D, SEBI Act, 1992) is couched in absolute terms (using the expression shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less )whereas the Section 13 of FEMA is couched in discretionary terms , and vests the regulatory authorities with discretion to impose a penalty up to three times the sum involved in the contravention ; - Thirdly , the Court in Shriram Mutual Fund had itself observed that penalty would get attracted only once the contravention was established; and further held that quantum of penalty to be imposed once the contravention was established was still a matter of discretion to be exercised in compliance with the settled principles of proportionality governing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty proceedings as has been noticed in some of the decisions of this Court, inhere on the face of the statutory provisions. Penalty proceedings are not to be initiated , as has been noticed by the Wanchoo Committee, only to harass the assessee . The approach of the assessing officer in this behalf must be fair and objective . 110. Moreover, in Hindustan Steel Ltd.v.State of Orissa[(1969) 2 SCC 627], this Court made the following observations: (SCC p. 630, para 8): 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 obligation. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itable projects. He has always been involved and connected with cricket. He had been instrumental in organizing one of India s first limited over tournaments and well experienced and passionate about such events. It is alleged that being the same, Mr. Manoj Badale, a friend of Mr. Barthakur, approached Mr. Barthakur and informed him about the opportunity arising out of the IPL tender floated by BCCI. He informed the Promoters had together bid for one of the franchises for the IPL. The Promoters had placed the franchise bid through EMIPL, a company in the United Kingdom in which Mr. Badale was the Chairman and sole shareholder. 78. Mr. Barthakur later learned that the tender document had required the bidder to deposit a performance deposit amount equivalent to Remittance 1 and that Mr. Badale had organized for the payment of the deposit amount to BCCI on behalf of the Promoters. Remittance 1 was a payment made prior to the incorporation of the Indian franchise operating company and its holding company and therefore before Mr. Barthakur being involved or being part of the venture. 78.1 Once BCCI awarded the franchise to the Promoters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adale. Mr. Castellino s role as CEO was to manage the operations and marketing of the franchise s cricket team. Mr. Badale promised to arrange for the funds for the franchise as and by way of investment. iv) Mr. Castellino was aware that Promoters together bid for one of the franchises for the IPL. They placed the initial bid through EMIPL, a company in the United Kingdom in which Mr. Badale was the Chairman and sole shareholder. He became aware that, in light of the fact that the tender document required the bidder to deposit a performance deposit amount of Remittance, Mr. Badale organized for the payment of the deposit amount to BCCI on behalf of the Promoters. v) Remittance 1 was a payment made prior to the incorporation of JIPL and its holding company and therefore before Mr. Castellino being involved or being part of the venture. vi) Once BCCI awarded the franchise on 24th January 2008, Mr. Badale introduced Mr. Castellino to Mr. Ranjit Barthakur (another business associate of Mr. Badale). After being awarded the franchise immediately BCCI required the franchise to bid for players, form a team and prepare for the tournament. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Iyer has resigned his directorship in JIPL in 2016. iii) Therefore, it is highlighted that all the respective Remittances (as defined hereinafter), took place at the time when Mr. Iyer was not a director and was neither involved nor had any view of the corporate or financial affairs of JIPL. Mr. Iyer was merely assisting with the sales and marketing of the franchise. He had no role to play in the day-to-day management of the company and was not involved with the financial or corporate functions of JIPL. In the case of Iyer, I am of the view that imposing any penalty on him under section 42(1) of FEMA is completely against the tenets of law and completely unjustified. The same is deleted/removed. 81. BISHWARNATH BACHUN: i) Mr. Bachun was merely a representative of the EM Shareholder and the IIyria Entity (together with Mr. Badale, Charles Mindenhall, Ron Reynolds and Paul Wilson). He had agreed that he would be acting for and on behalf of the shareholders that he is representing. He did not have any role in the daily operations of EMSH and was merely one of the ten directors of EMSH and thus was not in overall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Chellaram was merely a financial investor who was not involved in the regular day to day decisions of EMSH. He had his share of directors as representatives of his investment in the company. However, in the capacity of director, he was not in overall control of the company. Additionally, for Remittance 1 and Remittance 2 there was no involvement or control of EMSH and therefore a director of EMSH should not be held responsible for the same. As such the finding of the Respondent in this regard is clearly erroneous. ii) Mr. Chellaram at all times, was under the bona fide belief that the Remittances made by EMSH were legal and were made keeping in mind business emergencies. In respect of Remittance 1 and 2, it is submitted that the letter of eligibility clearly stated the scheme of investment, it was amply clear that EMSH will be eventually established and would become a holding company of JIPL. Therefore, the intention of routing money through offshore entities for the financial needs of JIPL was clearly set out. Thus, when there was a requirement of any payment to be made in relation to the Franchise it was only inevitable that the money would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve not been complied with by the Respondent while imposing the exorbitant penalty of INR 98.35 Crores vide the Impugned Order. As discussed earlier that there are contraventions happened due to bona fide or not by the appellants and it is also settled law that the plea of mens rea cannot be accepted if contraventions have happened as it is not a valid ground to ignore the offence of committed . Still there are cases where one can conclude the said contraventions are ex facie technical and venial in nature. As per the law laid down by the Hon ble Supreme Court, as detailed above, imposition of penalty in quasi criminal proceedings must be guided by the well-established principles of proportionality. Imposition of a penalty of INR 98.35 Crores as against the total value of Remittances of INR 33.22 Crores in respect of alleged contraventions which can at best be treated as technical and venial huge penalty three times is untenable and unsustainable in the facts and circumstances of the nature of the case. The details are that a) No loss has been caused to the exchequer in the present case. b) The Remittances have come into Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority is bound by the decision of the Board and Higher Courts, the following judgments can be referred to: a. Wimco Ltd. Vs. Director of Enforcement, 1997 [94] Taxman 542 at Page No. 547. b. Union of India Vs. Kamalakshi Finance Corporation Ltd., 1992 Supp (1) SCC 648) at Paragraphs 6 and 8. 89. Therefore, the parameters laid down by the Hon ble Supreme Court for imposition of penalty in the present quasi criminal proceedings are not wholly satisfied in the present case, and hence imposition of an exorbitant penalty of INR 99.35 Crores, the same is reduced to ₹ 15 Crores. 90. The said amount already deposited is very reasonable in view of facts and circumstances of the present case. The followings are the main reasons for reducing the same the amount already deposited. If the appellants wish to deposit separately, they may deposit the same after adjustment of amount already deposited. 91. The impugned order in relation to imposing the penalties is modified accordingly by reducing the penalties to be paid in the following manner:- Appeal No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the appellants as a pre-deposit in view of order passed by the Hon ble Bombay High Court dated 21.01.2015. Considering the overall facts and circumstances, the appeals are partly allowed by modifying the order by holding that penalties already deposited by the appellants is reasonable and the same be treated as penalties imposed in the present set of appeals in view of law laid down by the Supreme Court and other High Courts. 93. Learned counsel appearing on behalf of appellants has rightly submitted during the course of hearing that even otherwise if the appellants are not allowed to issue the shares to investors, then the amount of inward remittance be refunded back ,as per the mandatory provisions after disposal of the appeals. 94. The proviso to Regulation 8 of Schedule 1 of FEM (TISPRO) provides that where shares are not issued within 180 days from the date of receipt of inward remittance, the amount so received shall be refunded to the person concerned. 95. As far as issuance of shares to the remitters are concerned, the appellants, if so desired, may move the representation to the RBI and other authorities in this regard. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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