TMI Blog2020 (1) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... tated by the appellant is not helpful to the case of the appellant. There is no illegality in the impugned order passed by the Special Director, (Appeals).There are contravention of the provisions of section 6(3)(a) of the FEMA and Regulations 5, 6 13. The Adjudicating Authority has also rightly held that Mr. Taurani has violated the aforesaid provisions in terms of Section 42(1) of FEMA. - MP-FE-510/MUM/2019 (Stay) FPA-FE-10/MUM/2007, MP-FE-511/MUM/2019 (Stay) FPA-FE-11/MUM/2007 - - - Dated:- 9-1-2020 - Shri G.C. Mishra Acting Chairman For the Appellant : Shri Pragyan Sharma, Advocate, Shri Udit Jain Archit Gupta, Advocates For the Respondent : Ms. Aagam Kaur, Legal Consultant JUDGEMENT FPA-FE-10-11/MUM/2007 The present appeals have been filed against the common impugned order dated 27.11.2006 passed by the Special Director, Directorate of Enforcement, Mumbai imposing a penalty of ₹ 70,00,000/- (Rupees Seventy Lakh Only) on Tips Industries Ltd. and penalty of ₹ 20,00,000/- (Rupees Twenty Lakh Only) on Shri Kumar S. Taurani for violation of Section 6(3)(a) of FEMA, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk of India, the Company, by its letter dated 18.04.2003 clarified the position in respect of the investments made by the Company in DILM and its step-down WOSs. It was explained that the omission to give particulars of the Step-down WOSs was unintentional and occasioned only for the reason that though the Company had disclosed the business plans of DILM, including the plan to set up shop in California, New Jersey and South Africa, the local laws in the said places prevented the Company from doing so save and except through the above-named step-down WOSs. (v). On 14.11.2003, the WOS, accordingly, remitted a sum of US $ 37599, towards the interest on the loans prior to their conversion into equity. (vi) On 22.11.2001, for the purpose of the business of the WOS, the Company made remittance of US $ 5,00,000 in terms of the Reserve Bank of India approval and a further sum of US $ 2,00,000 on 09.02.2002. (vii). DILM, in its turn, for the purpose of the working capital of the step-down WOSs, remitted a sum of RS $ 3,49,925 to Dashmesh International Ltd., New Jersey and a sum of US $ 3,50,000 to Dashmesh International CA Ltd., California from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post facto approvals. (iv) Hence as the Directorate of Enforcement has been authorized by the RBI for imposing penalty and taking cognizance of the violations of the provisions of Foreign Exchange hence the penalty has been rightly imposed on the appellants. (v) Once the provision of FEMA have been contravened the person violating the provisions can only be redeemed either through compounding proceedings under Section 15 of FEMA, 1999 or when penalty is imposed by the Adjudicating Authority under Section 13 of FEMA, 1999. 7. The Respondent has filed the written submission on 08.01.2020 i.e. after the argument was over. In nut-shell, the appellant has raised the following issues and relied on the judgment cited therein in support of its submissions:- (i) No penalty can be imposed upon the Appellant insofar as RBI provided an ex-posto facto approval qua investment by the Appellant in the step-down susbsidiaries Life Insurance Corporation of India vs. Escort Ltd. and Ors., (1986) 1 SCC 264 Continental Construction Ltd. Ors. vs. Special Director of Enforcement, 2016 (1) JCC 690 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of INR 8,00,000 made as pre-deposit. 9. Heard both the parties, peruse the material placed on record and also perused the written submissions made by both the parties and the judgment relied on. 10. As it is understood from the record that one of the main allegation against the appellants is that the prior approval/approval of the RBI has not been taken when the appellants had made investment in the three step-down subsidiaries named above. The other allegation is that since the appellants have failed to take prior permission from RBI thereby they have contravened section 6(3)(a) read with Regulations 5, 6 13 of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations. The aforesaid Provision and Regulations are as below: Section 6(3)(a) Capital Account Transactions (3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations, prohibit, restrict or regulate the following:- (a) transfer or issue of any foreign security by a person resident in India; Now omitted Sub-section (3) by Act 20 of 2015, sec. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he net worth of the Indian party, the Indian party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation. (g) Hundred per cent. of the value of the bank guarantee issued by a resident bank on behalf of an overseas JV/WOS of the Indian party, which is backed by a counter guarantee/collateral by the Indian party. Overseas direct investment by an Indian party in Pakistan shall henceforth be considered under the approval route under regulation 9 of this Notification.] (ii) The direct investment is made in an overseas Joint Venture or Wholly owned subsidiary engaged in a bonafide business activity. (iii) The Indian Party is not on the Reserve Bank s Exporters caution list /list of defaulters to the banking system circulated by the Reserve Bank or under investigation by any investigation /enforcement agency or regulatory body. (iv) The Indian party has submitted Annual Performance Report in respect of all the overseas investments in the format given in Para III of the Form ODI., as prescribed by the Reserve Bank from time to time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in India/guarantee by group company, sister concern or associate company in India, provided that: (a) total financial commitment including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party and (b) no guarantee is open ended ] (d) utilisation of the amount raised by issue of ADRs/GDRs by the Indian party; (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines. (f) Swap of shares (g) ADR/GDR Stock Swap subject to the valuation norms and sectoral cap.] (h) Fifty per cent of the value of performance guarantee issued by Indian Party to or on behalf of the JV/WOS. Explanation.-In cases where invocation of the performance guarantees breach the ceilings for the financial exposure of 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian Party, the Indian Party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation. (i) hundred per cent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) with prior approval of the Reserve Bank, an Indian party may undertake financial commitment without equity contribution in JV/WOS provided it is as per the business requirement of the Indian party and also as per the legal requirement of the host country. (v) Compulsorily Convertible Preference Shares (CCPS) shall be treated at par with equity shares and the Indian party is allowed to undertake financial commitment based on the contribution to JV by way of CCPS. (5) An Indian Party may make direct investment without any limit in any foreign security out of the proceeds of its international offering of shares through the mechanism of ADR and/or GDR: Provided that- (a) the ADR/GDR issue has been made in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993 and the guidelines issued thereunder from time to time by the Central Government; (b) the Indian Party files with the designated authorised dealer in Parts I and II of the form ODI, as prescribed by the Reserve Bank from time to time, full d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18.04.2003 and 14.10.2003 addressed to the appellant company. The appellant s are heavily relying on the RBI letter dated 14.10.2003 to substantiate their case to that the RBI has granted post approval to the aforesaid investment made by the appellant company in the step-down subsidiaries. On perusal of the said letter nowhere it is mentioned that the RBI has approved the said investment rather it is mention that we observe that the WOS in Mauritius acquired subsidiaries in USA and South Africa without prior approval and the fact that such acquisition were made was not brought out in your initial application made in December, 2002 for consolidation of your business. Your inability to provide satisfactory clarifications on the method of acquisition has also been noted. We advise that recurrence of such lapses will be viewed very seriously. 13. The aforesaid reply of RBI in their letter dated 14.10.2003 is in reply to the appellant s letter dated 20.09.2003 and the letter dated 20.09.2003 was in reply to RBI letter dated 17.09.2003. From the documents available on record it could not be ascertained that the appellants sought post approval of RBI with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty imposed are not proportionate to the alleged contravention. The Section 13 of the FEMA, 1999 provides the provision for the imposition of penalties. The said provisions reads as follows:- 13. Penalties.- (1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable. .. In the aforesaid provision it is provided that if any person contravened any provision of this act or contravened any rules, regulation, notification, direction or order issued in exercise of the powers under this Act be liable to penalty upto thrice the sum involved in such contravention where such amount is quantifiable. In the present case the sum involved are quantifiable. During the course of argument the learned counsel for the appellants submitted, on quer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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