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TMI Blog2019 (8) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri Rajeev Awasthi, Advocate JUDGEMENT FPA-FE-09-19/MUM/2013 1. All the appeals arise out from the common Adjudication Order No. ADJ/01-04/B/SDE/BK/2013/FEMA dated 30th January, 2013, passed by Special Director, Enforcement Directorate, Mumbai, wherein the appellants were held liable for contravention of the provisions of Section 3(b), Section 6(2), 6(3)b & Section 42(1) of FEMA, 1999 read with Regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, Paragraph 8 of schedule of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, Regulation 5 of 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 and a total penalty of Rs. 98,35,00,000/- ( Rs. Ninety eight crores thirty five lakhs) has been imposed against all the appellants as mentioned in the Impugned Order. 2. The details of the respective appeals, penalty imposed and contravent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indian Constitution 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 precedent for placing the bid, the bidders were required to make payments to BCCI towards te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en no refund of such amounts to the investors. The Remittances, which are to the quantum of approximately INR 33 crores, have been brought into the country in the form of investment and there have been no shares issued or any other benefit accrued to investors for over 11 years since. 13. It is an undisputed position that the Remittances were utilized for the purpose for which they were made. 14. Remittance 1 and Remittance 3 (together constituting approximately 70% of the total value of the Remittances) were directly received by BCCI towards payment of franchise fee for securing the 'Rajasthan Royals' franchise in favour of JIPL. 15. Remittance 2 was received and utilized by JIPL for making the 'Rajasthan Royals' franchise operational for participation in the first edition of IPL. 16. The undisputed fact is that the 'Rajasthan Royals' franchise was awarded by BCCI to JIPL, as also the fact that they have been playing in the various seasons of IPL, further corroborates the undisputed position that the Remittances were utilized for the intended purpose for which they were made. 17. There is not even an allegation against the Appellants regarding misutilization or diversion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd are were appointed as directors of EMSH to comply with the Mauritian laws. The Appellants in Appeal Nos. 17 and 19 of 2013 (Mr. Suresh Chellaram, Mr. Manoj Badale), who participated in the bid for IPL franchises that was established by BCCI, are also directors of EMSH and also hold shares of EMSH through intermediary companies. The Appellant in Appeal No. 18 of 2013 is a UK based limited liability partnership, which was controlled by Mr. Manoj Badale. Case of the respondent 22. On receipt of certain reliable information, enquiries were initiated by the Mumbai Zonal Office of the Enforcement Directorate into the functioning of the Twenty-20 Cricket Tournament known as Indian Premier League (IPL) organized by the Board of Control for Cricket in India (BCCI). Directions under section 37 of the FEMA, 1999 were issued to the BCCI on 29.05.2008 and 14.07.2008 to furnish required information. Vide letters dated 04.07.2008, 07.08.2008 and 30.10.2009, BCCI furnished certain details. Subsequently, information was also gathered from the various sources including print and electronic media pointing to alleged large scale irregularities in the conduct and functioning of the IPL, necessit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performance deposit. The performance of remittance as shown in the two FIRCs dated 04.08.2008 issued by HDFC Bank, Mumbai was towards tender deposit for sponsorship of teams in IPL, the name of the beneficiary was shown as BCCI-IPL in the FIRCs. It is contended that the amount of Rs. 20,19,87,410.23 was paid by appellant Manoj Badale on behalf of EMIPL, U.K., towards performance deposit for the acquisition of the franchise. Later, the franchise agreement was signed my M/s. JIPL with BCCI for Rajasthan Royals on 14.04.2008. The balance deposit of US$ 773, 480.99, after the auction, was paid to BCCI by M/s. EM Sporting Holdings Ltd., Mauritius (EMSH) on 20.06.2008. The amount paid was equal to Rs. 3,29,40,000/- and was received by BCCI in its account with HDFC bank from Standard Chartered Bank, Mumbai, which in turn received the amount from Standard Chartered Bank, Mauritius. Thus the total amount remitted to BCCI by appellant, ManojBadale and M/s. EMSH, Mauritius was Rs. 23,49,27,410.23 equal to GBP 2,32,026.72 plus US$ 7,73,480.99. From the documents furnished by JIPL it was revealed that the company was incorporated on 08.03.2008 only, is a wholly owned subsidiary (WOS) of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has rejected their application advising to file the same before FIPB. 23. The investors who made the inward remittances totalling to Rs. 33,22,45,444.23/- admittedly have received no equity shares having beneficial transferable interest in consequence of their remittances. 24. In order to expedite the resolution of the issues, the Appellants approached the Hon'ble High Courts (both Delhi and Bombay) on diverse occasions. There are various orders all directing an expeditious disposal of the pending issues. Further, at the pre-deposit stage, JIPL has paid an amount of Rs. 15 Crore in accordance with Order dated January 21, 2015 of the Hon'ble Bombay High Court. The Hon'ble Bombay High Court in its last Order dated August 28, 2018 has also suggested that the matter be taken up expeditiously. 25. Thereafter, the appeal hearing continued for around two years and the Appellate Tribunal for Foreign Exchange through earlier order dated February 02, 2017 ("Tribunal Order") reduced the overall penalty in the Impugned Order by 30%. The earlier Tribunal Order records the undisputed factual position as under: "54. It is also observed that Foreign Exchange has come in the country and not g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recently was a board member of the Robin Hood Foundation in New York and sat on the executive committee of the board of the Partnership for New York. He is currently a Director of Asia Pacific Business Coalition on HIV/AIDS. Mr. Murdoch holds dual US and Australian passports and lives in Bronte, Australia, with his wife Sarah and two sons, Kalen & Alden. Mr. Murdoch holds a Bachelors Degree in Philosophy from Princeton University, USA. b) Suresh Chellaram: Suresh Chellaram is the managing director of Chellarams Plc, a company founded in Nigeria in 1923. The family group, founded by his great grandfather Kishinchand Chellaram, has it's business roots in Madras. He was born in 1956 in Mumbai, India, educated in Eastbourne College, UK and then at the University of San Diego, CA USA. Chellarams Plc is primarily a distribution company with branches throughout Nigeria and the said company has been publicly listed since 1978. Chellaram Plc imports and distributes industrial chemicals and consumer products. Their other interests, in Nigeria, are in manufacturing - textiles, plastics, bicycles; property development; airline catering and airport lounge management; airport duty free shop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 (as an operating company in India was required under the BCCI regulations) and on 14.04.2008, JIPL signed a franchise agreement with BCCI. It is important to note that it was the BCCI regulations that stipulated that the performance deposit (that is Remittance 1) would be treated as part payment of franchise fee by the RR franchise i.e. JIPL in this case. c) On allotment of the franchise, JIPL was immediately asked to buy players to form a team and prepare to play the tournament. For this JIPL required working capital and in April and May, 2008, ND Investments LLP, UK (appellant in Appeal No. 18/2013) and Manoj Badale remitted an amount of Rs. 9,73,18,034/- into JIPL with the concurrence of all the Promoters ("Remittance 2"). d) On 05.05.2008, EM Sporting Holdings Limited ("EMSH") was incorporated in Mauritius. e) On 09.06.08, BCCI asked Manoj Badale to make the payment towards the last installment of the franchise fee within 48 hours. f) On 21.06.2008, EMSH paid to BCCI directly, the portion of the franchise fee of Rs. 3,29,40,000 or USD 7,73,480.99 ("Remittance-3"). 32. From the beginning, it was the case of the appellants that the major portion of the subject inflow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g are the violations: I. 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 ("TISPRO") and Para 8 of Schedule 1 thereto and also read with Regulation 5 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 ("PCAT") issued under Section 6(2) of FEMA to the extent of Rs. 33,22,45,444/-. II. Section 6(3)(b) of FEMA read with Regulation 5(1) of TISPRO and also read with para 9(1)A of Schedule 1 thereto to the extent of Rs. 33,22,45,444/-. III. Appellants for Appeal Nos. 10, 11 and 12 of 2013 are deemed to have contravened the above provisions in terms of Section 42(1) of FEMA. 36. The Impugned Order records that there has been an inflow of foreign exchange into India (as far as the Appellants are concerned, it is an admitted inflow of foreign exchange to the tune of Rs. 33,22,45,444/-). It is also recorded that against the Remittances, the Appellants have not till date received anything in return as no shares having beneficial transferable interest have been issued in lieu of the Remittances and the Appellants must be issued the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the Letter of Eligibility, dated 22nd January, 2008, it has always been the intention of the Promoters that the investment into the Indian company would be through a joint venture company established in Mauritius. The structure and all detailed information were annexed to the bid. The objective behind having a joint venture holding entity in Mauritius was because the promoters intended that the business would capitalize on cricket in the overseas markets and use the franchise team as first step towards this objective. Further, the objective was also to engage in the business of event management, conducting, managing and organizing international sports events worldwide. The Mauritius entity would be the entity in which the Promoters would have their respective interest through their investment vehicles. The Parties wanted to structure the franchise business in the following manner: image 1. c) Source of investment: It is submitted that a question in relation to source of the remittance funds is usually raised to ensure that it is clarified that the persons remitting the funds are traceable and have the investible capacity. Further, the transaction is not a sham transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny security by a person resident outside India and therefore is not attracted to the present case since JIPL (the entity that is supposed to issue the shares) is an Indian entity. iv. Regulation 5(1) of TISPRO applies only to a situation where a non-resident purchases shares or convertible debentures of an Indian company. At the outset, this regulation talks about purchase of securities of an Indian company and it is not applicable to the Appellant. JIPL is not an entity that is selling its shares. In the present case, all the Remittances have been treated as share application money in the books of the Appellant (JIPL) in lieu of shares that were to be issued. There was no intention to purchase shares of JIPL. When an Indian company issues shares, it is not selling shares. A transaction for purchase of shares can only occur in respect of shares already issued and necessarily involve a seller of shares. Regulation 5 therefore has no application to the instant case. The Regulations themselves draw a distinction between issue of shares and purchase of shares. Provisions relating to issue of shares are contained in Regulation 4 and not Regulation 5 of the TISPRO. v. Further, from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prevent such contravention. a) In the present case, the proceedings have been conducted on the basis that the aforesaid three individuals were responsible to the JIPL for the conduct of the business of the company. The present case is one of imposition of penalty and it is therefore critical that all of the ingredients of the offence are duly made out and fully substantiated/evidenced. In the facts of the present case, the Impugned Order does not establish the ingredients of the offence in respect of all or any of the individuals in question; b) In the present case, the imposition of penalty is baseless as the Respondent has failed to establish the ingredients of the offence and has in fact proceeded on a completely presumptive basis that the individuals in question were in charge and responsible to JIPL for the conduct of its business; c) The condition precedent for the invocation of Section 42(1) is that there has been a contravention by the company. 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge a person under Section 42(1) of FEMA, the Respondent has the onus to establish that the respective individual should have been in charge and had knowledge of the respective violation. Reference in this regard is made to the judgment in the matter of Ajay Bagaria v. Union of India, [2008 (103) DRJ 324]. The same has definitely not been proved by the Respondent. On the contrary, the roles of the directors in the JIPL clearly demonstrate no penalty is leviable since the same were not responsible for any alleged contravention committed by the JIPL. v. Thus, there are no details provided in the Impugned Order in respect of the independent roles of the concerned persons on whom such huge amounts of penalty have been imposed. When an individual is being fastened 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 U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance requirements and issues being faced. Mr. Barthakur's role in JIPL was in relation to management, revenue generation, brand building, promoting and advertising. vii) Accordingly, it is submitted that Mr. Barthakur was never party to, nor did he control or take any decision with regard to the Remittances. In light of the above, Mr. Barthakur should not be considered to be in violation and accordingly should not be required to pay any penalty. The penalty imposed under the Impugned Order is completely unjustified. 40. Submissions on behalf of Mr. Fraser Castellino (Appellant in Appeal 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity arising out of IPL tender floated by the BCCI in December 2007. ii. It was in this context that Mr. Badale requested, and Mr. Iyer agreed to work within the franchise in a sales and marketing role. However, it is important to note that he was never involved with the arrangement of the bid for the IPL franchise or with the management of the Rajasthan Royals team before October 2008. Prior 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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company could not provide satisfactory proof of receipt of foreign exchange despite ample opportunities". 45. Thereafter, JIPL filed an application before 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue shares to foreign investors were rejected. The report required 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Remittances have been received for the benefit of JIPL. JIPL has been awarded a franchise in lieu of so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued under section 6(2) of FEMA to the extent of Rs. 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 Rs. 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 Rs. 23,49,27,410.23 and Rs. 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 was issued to M/s. EM Sporting Holdings LTD. for the contravention of Section (2) of FEMA read with Regulation 5 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,10,00,000/- (Rs. Five crores ten lakh), Mr. Fraser Castellino as Rs. 6,40,00,000/- (Rs. Six crores forty lakhs), M/S. EM Sporting Holding Ltd., as Rs. 18,90,00,000/- (Rs. Eighteen crores ninety lakhs), Mr. BishwarnathBachun as Rs. 2,45,00,000/- (Rs. Two crores forty five lakhs), Mr. Mr. SamilaSivaraman as Rs. 2,45,00,000/- (Rs. Two crores forty five lakhs), Mrs. Barbara Jacqueline Haldi as Rs. 2,45,00,000/- (Rs. Two crores forty five lakhs), Mr. Suresh Chellaram as Rs. 3,70,00,000/- (Rs. Three crores seventy lakhs), M/S. ND Investments LLP as Rs. 2,00,00,000 (Rs. Two crores) and Mr. ManojBadale as Rs. 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 30.01.2013 in a detailed manner and the matter have been elaborately discussed and decided after proper application of mind. The contention of the appellants that the provisions of FEMA are not applicable to non-residents and hence are not subject to jurisdiction of this Tribunal are not sustainable as section 1(3) of the FEMA makes it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 extant FDI policy. The nature of transaction clearly shows 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 that the holding company of JIPL is incorporated in Mauritius is wholly irrelevant to determine whether the Appellants have contravened the provisions of FEMA and Regulations made thereunder as alleged in the Impugned Order. The provisions invoked against the Appellants are 'regulatory' in nature and fall under category (c) as described above. The requirement of reporting the receipt of inward Remittances to the RBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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' franchise and make it operational for participation in the first edition of the IPL; there is no allegation or aspersion on the legitimacy of the source of funds, financial capacity or integrity of the entities which made the Remittances; the Remittances were utilized for the purpose for which they were made and it is not in dispute that over 70% of the Remittances were received by BCCI; the bona fide efforts to seek approval from the regulatory authorities (RBI and FIPB) over a course of two years have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure 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 approval has been granted. The applications made by the appellant were rejected. h) With regard to the second remittance, it has been made in 4 tranches by Mr. Manoj Badale and ND Investments to JIPL, however, the shares are proposed to be issued to EMSH by JIPL. As suggested, the remitter of funds is different from the investor to whom the shares are being sought to be issued as mentioned in the Impugned Order. i) With regard to third remittance, it is admitted that the remittance was made by EMSH to BCCI directly on 20.06.2008, whereas the JIPL was incorporated on 08.03.2008. The appellants have not provided any satisfactory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities 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 conviction or sentence, 'the consequences are equally penal and disastrous' - Shashank Vyankatesh Manohar v. Union of India, 2014 (1) Mh.L.J 838. Section 14 clearly provides that in case the penalty imposed is not paid within the time period provided, it would result in civil imprisonment. A bare perusal of Sections 6, 13, 14 and 42 of FEMA clearly establishes that provisions of FEMA are onerous in nature and wide in scope. It is a settled principle of law that statutes which impose onerous obligations, are wide in scope and ambit and envisage penal consequences must be construed strictly. 61. Section 42 of FEMA governs the imposition of penalty upon persons in charge of, and responsible to, the company for the conduct of the business of the company. In order to invoke the said provision, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 64. As to which person can be considered in charge of, and responsible to the company for the conduct of business of the company has been conclusively laid down by the Hon'ble Supreme Court in Girdhari Lal Gupta v. D.H Mehta, (1971) 3 SCC 189 as under: "6.What then does the expression "a person in-charge and responsible for the conduct of the affairs of a company" mean? It will be noticed that the word "company" includes a firm or other association, and the same test must apply to a dire ctor in-charge and a partner of a firm in-charge of a business. It seems to us that in the context a person "in-charge" must mean that the person should be in over-all control of the day t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Negotiable Instruments Act, the only persons who can be said to be connected with the contravention of FEMA at the relevant time have been subjected to action. That is why even in case of a person holding the position of a managing director, he will not be liable if he had no knowledge of the contravention when the contravention took place or if he had exercised all due diligence to prevent the contravention of the Act. The liability is thus cast on persons who had something to do with the transactions complained of. 35. Having further considered the rival submissions, we are of the view that since the material on record was sufficient to take the view that the petitioner himself was not in charge of and responsible for opening and operating the bank accounts involving receipts and remittances of foreign exchange to parties outside India, it would be necessary for the adjudicating authority to form an opinion whether the petitioner could at all be considered as covered by the substantive part of Section 42(1) of the Act and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. ... 12. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable." (Emphasis supplied) 68. In the present case, exorbitant penalty has been imposed upon the individuals arrayed herein without recording any findings on the specific roles of the said individuals. It is also important to highlight that judicial precedents clearly establish that the onus of proving the role of an individual and specifically proving that the said person was in day to day management of the affairs of the company is that of the Respondent Department. It is evident from a perusal of the Impugned Order that the Respondent has completely failed to discharge the said burden of proof. Provisions of Section 42(1) of FEMA have been simply reproduced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sought to be imposed for contravention of a statutory obligation (such as in the present case) are 'quasi criminal proceedings' - Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627. Consequently, the parameters laid down by the Hon'ble Supreme Court and various High Courts for imposition of penalty in quasi-criminal proceedings are mandatorily required to be complied with in the present proceedings. 73. Reference to the judgment of the Hon'ble High Court of Madras in New India Maritime Agencies Pvt. Ltd. v. The Assistant Director, Enforcement Directorate, 1987 (13) ECC 128 ['New India Maritime'] is particularly relevant. In New India Maritime, the Court was considering a case where a nominal penalty had been imposed upon the Appellants for contravention of provisions of the Foreign Exchange Regulation Act, 1973, on the basis of the allegation that the Appellant as an Indian agent of certain non-resident entities had made certain payments on their behalf without obtaining permission from the RBI. The Court held that once it is established that there was no other way of a particular business activity and that disclosures of the said business activity had been duly made to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llants is unjustified in the facts and circumstances of the instant case. 74. The Hon'ble Supreme Court had the occasion to lay down the parameters for imposition of penalty in quasi criminal proceedings in the oftquoted judgment of Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627, wherein it was held as under: "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 is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he technical contravention even though the regulatory authority was found to be empowered to impose a maximum penalty of INR 60 lakhs in the facts of the said case; whereas in the present case, the Respondent has imposed a penalty of INR 98.35 Crores upon the Appellants when the total amount involved in the three sets of Remittances is INR 33.22 Crores. 76. The Hon'ble Supreme Court in Excel Crop Care Ltd. v. Competition Commission of India, (2017) 8 SCC 47 ['Excel Crop Care'] recently had the occasion to consider the parameters for imposition of penalty under the Competition Act, 2002 and the manner in which discretion must be exercised according to the settled principles of proportionality by the regulatory authorities while imposing penalty. The observations of the Hon'ble Supreme Court in Excel Crop Care, to the extent relevant for the present proceedings, are reproduced hereunder: "109.At this point, I would like to emphasize on the usage of the phrase "as it may deem fit" as occurring under Section 27 of the Act. At the outset this phrase is indicative of the discretionary power provided for the fining authority under the Act. As the law abhors absolute power and arbitrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the principle of proportionality requires the fine imposed must not exceed what is appropriate and necessary for attaining the object pursued. In Coimbatore District Central Coop. Bank v. Employees Assn.[(2007) 4 SCC 669], this Court has explained the concept of "proportionality" in the following manner: (SCC p. 678, paras 18-19): 18. "Proportionality" is a principle where the court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of decision-making consists in the attribution of relative importance to the factors and considerations in the case. The doctrine of proportionality thus steps in focus true nature of exercise-the elaboration of a rule of permissible priorities. 19. De Smith states that "proportionality" involves "balancing test" and "necessity test". Whereas the former ("balancing test") permits scrutiny of excessive onerous penalties or infringement of rights or interests and a manifest imbalance of relevant considerations, the latter ("necessity test") requires infringement of human rights to the least restrictive alternative." In consonan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver been responsible for matters of regulatory compliance on a day-to-day basis. There had been a compliance team in place that was trying to manage the compliance requirements and issues being faced. Mr. Barthakur's role in JIPL was in relation to management, revenue generation, brand building, promoting and advertising. Accordingly, it is submitted that Mr. Barthakur was never party to, nor did he control or take any decision with regard to the Remittances. In light of the above, Mr. Barthakur should not be considered to be in violation and accordingly should not be required to pay any penalty. The penalty imposed under the Impugned Order is completely unjustified. This Tribunal is of the view that to some extent, he was involved in the said activities from the very beginning and admitted, he is the friend of Manoj Badale who was actively involved, thereafter limited penalty of a sum of Rupees one crore is imposed. 79. Submissions on behalf of Mr. Fraser Castellino (Appellant in Appeal 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Barthakur. The penalty is reduced to Rupees one crore. 80. Submissions on behalf of Mr. Raghuram Iyer (Appellant in Appeal No 12/2013): i) Mr. Iyer is a prominent professional involved in the sports marketing sector. Mr. Iyer first met Mr. Badale in 2007. He then started working with Mr. Badale in Mr. Badale's cricket related business in India, being initially the "Cricket Star" TV programme and then he also became involved with the IPL franchise project. Mr. Badale had informed Mr. Iyer about the opportunity arising out of IPL tender floated by the BCCI in December 2007. ii) It was in this context that Mr. Badale requested, and Mr. Iyer agreed to work within the franchise in a sales and marketing role. However, it is important to note that he was never involved with the arrangement of the bid for the IPL franchise or with the management of the Rajasthan Royals team before October 2008. Prior 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 af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer. The penalty is wrongly imposed. It is set-aside. 83. MS. BARABARA HALDI i) Insofar as EMSH is concerned Ms. Haldi was merely a nominee director of EMSH nominated by Mr. Suresh Chellaram/Tresco International Limited to represent and act solely in accordance with the instructions of Mr. Suresh Chellaram and/or Tresco International Limited, one of the shareholders in EMSH. Ms. Haldi did not have any role in the daily operations of EMSH and only acted on the instructions of Mr. Chellaram/Tresco International Limited. Further, Ms. Haldi's scope of work was limited to that of administrator providing secretarial and administrative support. ii) Ms. Haldi was not even aware of Remittance 1 and Remittance 2 as EMSH was still not in existence nor had an operational bank account and therefore she had no knowledge of the respective Remittances. iii) It is further submitted that Remittance 3 was made by EMSH itself and Ms. Haldi, being only a nominee director, had no control in respect thereof. Therefore, in absence of any mens rea imposition of penalty is not justified. The penalty is removed. 84. MR. SURESH CHELLARAM: i) Mr. Chellaram was merely a financial investor who was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be arranged by the Promoters. In such a scenario, Mr. Badale arranged for respective payments. Such remittance made was purely based on business necessities and was not a deliberate act by Mr. Badale to flout any law or regulation in force at that point in time. I do not agree with the submission of the counsel. It may be possible about the absence of any mens rea, imposition of penalty on Mr. Badale, but it is the admitted position that the entire amount is not paid by him directly from his account and companies owned by him. Therefore, Manoj Badale and N.D. Investments LLP are responsible for such transactions in which the contraventions have happened. But, in the nature of this case, the penalties is reduced to Rs. 2 crores to each of them as well to EM Sporting Holding Ltd. for leveling allegations against them. 86. Therefore, it is evident that the parameters for imposition of penalty in the present quasi criminal proceedings initiated 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. As discussed earlier that there are contraventions happened due to bona fid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of FEMA and Regulations made thereunder, which contraventions can at best only be categorized as technical and venial in nature. It is submitted that the exercise of discretion by the Respondent while imposing penalty in the instant case is ex facie arbitrary, capricious, without application of mind and unsustainable. 88. The various propositions of law that have been raised above have been well settled by the Foreign Exchange Regulation Board/High Court of various states/the Supreme Court and the adjudicating officer is bound to follow the said decisions. It is submitted that the impugned Order is perverse inasmuch as it did not deal with many of the Judgments of the Supreme Court and various High Courts that were cited and which were binding upon the Adjudicating Officer. For the proposition that the adjudicating authority 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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