Allowed

FPA-FE-111/MUM/2008 of Harshad Kantilal Patel v/s The Special Director Directorate of Enforcement, Mumbai

ATFP8 Aug 2018FPA-FE-111/MUM/2008

Case brief

AI extract

What is this about?

The Appellate Tribunal set aside the penalty order imposed on the appellant for accepting an interest-free security deposit under a caretaker lease agreement. The court held the transaction was exempt from FERA permission requirements and did not constitute a contravention.

What did the court decide?

The appellant's appeal was allowed and the impugned penalty order was set aside against the appellant only.

FPA-FE-111/MUM/2008 of Harshad Kantilal Patel v/s The… — Service and Employment | ATFP (2018)

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APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT AT NEW DELHI

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Date of Decision: 08.08.2018

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FPA-FE-111/MUM/2008

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Harshad Kantilal Patel … Appellant Versus The Special Director Directorate of Enforcement, Mumbai … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	: Shri Manish Jain, Advocate Shri Rukban Tyagi, Advocate
For the respondent	: Shri Prashant Pandey & Ms. Aagam Kaur, Legal Consultants
CORAM JUSTICE MANMOHAN SINGH	: CHAIRMAN

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JUDGEMENT

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FPA-FE-111/MUM/2008

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The appellant has filed the present appeal under Section 52 of Foreign Exchange Regulation Act against order dated 27.06.1997 (dispatched on 15.04.1998 which was received on 22.04.1998) passed by the Special Director.

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The Appellant was charged under 9(1) (b) & (d) of the FERA Act for accepting interest free security deposit of 65 lacs from the branch office of M/s DNV located in Mumbai, as the Regional Manager of M/s DNV had taken up the flat bearing no. No.24 on 20^th floor, Kanchanjunga Mumbai for 36 months which belonged to Appellant‟s brother and sisterin law and who had signed a Power of Attorney dated 21.05.1987 in favor

of Appellant.

FPA-FE-111/MUM/2008

Page 1 of 7

The facts of the matter are that in the year 1987, a Flat bearing No. flat No. 24 on 20^th Floor, Kanchanjunga, Mumbai being owned by Shri Rajesh Kantilal Patel and his wife Smt. Lekha Rajesh Patel, 57, Ennismore Garden, London (British National), was leased out to Shri Ulf T. Fredudandahl, Regional Manager of M/s Det Norske Verita in India (hereinafter referred to as M/s DNV) as per agreement dated 09.04.1987. The said Flat was leased out to M/s DNV for a period of 36 months with an opinion to renew the same for 12 months for a consideration of Rs. 65 lakhs to be deposited interest free with the owners till the flat is returned to the owners in vacant possession.

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It is the case of the respondent that the said payment of Rs. 65 Lacs made by M/s DNV is alleged to be in contravention of Sec. 9(1) (d) FERA, 1973 in as much as the payment was made by M/s DNV to the Appellant on behalf of said Flat owners being Shri R.K. Patel and Smt. L.R. Patel. That it has further been alleged that as the appellant has received the said amount of Rs. 65 Lacs and credited it to his account with Dena Bank Gawalia Tank Road, Bombay and therefore the Appellant has alleged to have contravened the provisions of Sec. 9(1)(b) of FERA, as the said amount is alleged to have been received from M/s DNV on behalf of Shri R.K. Patel and Smt. L.R. Patel, who are the Non Resident of India.

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Accordingly, on 4.09.1991, the Respondent No. 2 issued a show cause notice to the appellant, Shri Ulf. T. Freudendaul and M/s DNV, in respect to the contravention of the provisions of Sec. 9(1)(b) of FERA. It was further alleged that all of the said parties rendered themselves liable to be proceeded against U/s. 50 of FERA and were therefore by the Memorandum called upon to show cause as to why adjudication

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FPA-FE-111/MUM/2008

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Page 2 of 7

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proceedings as contemplated in Sec. 51 of FERA should not be held against them for the respective contraventions alleged against them.

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The said Show Cause Notice was duly been replied by an Advocate of the Appellant being Shri H.C. Jain, vide his letter dated 19.9.91 and19.11.1991 and finally by the letter dated 19.03.1997, thereby denying the allegation of contravention of FERA provisions.

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M/s DNV and Shri Ulf. T. Fredendaul was also issued Show Cause Notices with regard to certain other contraventions made under FERA with regard to other transactions.

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The respondent no. 2, after hearing the matter, vide its order dated 27.09.1997, erroneously held the Appellant, M/s DNV and Shri Ulf T. Freudendaul, guilty for the contravention u/s 9(1)(b) & 9(1)(d) r/w 68(1) of the FERA for the amount of Rs. 65,00,000/-. Accordingly, the Respondent N. 2 imposed the penalty amount of Rs. 32,50,000/-(Rupees Thirty Two lakhs and Fifty Thousand only) on Petitioner, M/s DNV and Shri Ulf T. Freudendaul respectively.

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The said penalty was further directed to be deposited in the office of Dy. Director, Enforcement Directorate, Mittal Chambers, Nariman Point, Bombay-21 by demand draft drawn in favour of Pay & Accounts Officer, Pay & Accounts Office, Department of Revenue, Ministry of Finance, New Delhi within forty five days from the date of receipt of the said Order.

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The Respondent No. 3 held M/s DNV and Shri Ulf. T. Freudendaul guilty of other contravention made under FERA by virtue of the same combined order.

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FPA-FE-111/MUM/2008

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Page 3 of 7

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Being aggrieved by the said order dated 27.06.1997, the appellant filed on 05.06.1998 filed an appeal No. 111/1998 before the Appellate Tribunal alongwith the application for dispensation of pre-deposit of the penalty amount.

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M/s DNV and Shri Ulf T. Freudendaul also filed the appeal being 90 to 97 of 1998, against the said order dated 27.06.1997.

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The appellant does not deny the fact that M/s DNV was found to be in contravention and violation of various FERA provisions. Rather it stated that the Appellant too became a scapegoat under the said scrutiny of the department and under an erroneous understanding was charged with violation of 9 (1) (b) & (d) of the FERA Act.

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As per pleadings the interest free security deposit of Rs 65 Lacs was refundable after the expiry of the agreement and the same had been returned to M/s DNV after the expiry of 36 months. it is not disputed that the money has not been returned to M/s DNV after the expiry of 36 months.

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There is no denial or any allegations of not returning the same had been casted on the Appellant in the Memorandum or in the impugned judgment.

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There is also not denial that the security deposit money had been received in India by the Appellant from the branch of office of M/s DNV which was also located in India then and the Regional Manager who had taken up the flat also was in India during that relevant time. There was

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FPA-FE-111/MUM/2008 Page 4 of 7

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no transferred of money outside India nor came inside Inida from outside.

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The entire case of the appellant is that the said Rs 65 Lacs taken as security deposit was taken by Appellant on his own without the knowledge of his brother and sister-in law and there is no evidence as such to show there was any instructions to Appellant from his brother and sister-in law to accept the said amount.

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There was a clause in Power of Attorney dated 21.05.1987 wherein it is stated “to give the above flat on caretaker or leave and license basis, to any person who is a citizen of United States of America or of Western Europe but not any Indian nationality”, however despite of said facts the Respondent charged the Appellant of the said alleged offence.

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The proviso to section 31(1) of FERA Act clearly stipulates that nothing in the operative part of Section 31 (1) shall apply to the acquisition of transfer of any immovable property as visualized in the operative part, by way of lease for a period not exceeding 5 years.

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The said proviso provides that no permission would be required by a person who is not a citizen of India and acquire or transfer any immovable property held by him by way of lease for a period upto 5 years without any permission general or special from RBI.

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It appears from the reading of agreement and fact and circumstances, it was merely a care taker agreement for 3 years. From the very wordings that the lease could be granted means that the transaction of the lease would be totally exempted from the general or FPA-FE-111/MUM/2008 Page 5 of 7

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special permission of RBI. The agreement had no provision for any forfeiture of the said amount or part thereof.

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Thus, the benefit of doubt goes in favour of the appellant because as per facts of the present case, it would be that any security deposit taken for fulfillment of the terms and conditions would not attract any general or special permission of RBI to be taken.

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The impugned order is not sustainable as the said caretaker agreement to be a lease agreement and likewise as security deposit as consideration, as the terms „receipts and payments‟ visualized in section 9 (1) (b) & (d) of the FERA Act means consideration.

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It is merely in the case of lease agreement that vested right is created in favor of lessee but in the present case no vested right is created as the said caretaker agreement is only a leave and license agreement and thus the Appellant had temporary lien over the said security deposit. The appellant had no relation with the accused person to whom the appellant has only allowed to use the property of the owner/landlord. The appellant has no criminal record for any offence or have any link and nexus with the (then tenant) directly or indirectly to criminal activities. The money paid by him never transferred outside India. Thus, there is no contravention of any provision committed by the appellant.

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It is stated on behalf of the respondent during hearing that payment of monthly compensation was payable at the rate of Rs 9000/per month but the same was not a subject matter of Memorandum.

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FPA-FE-111/MUM/2008

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Page 6 of 7

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Therefore, there was no contravention of the provisions of the FERA Act. And also of the Section 9(1) (b) which stipulates in the explanation to the Section that the money has to come from outside India.

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In the light of the above facts and circumstances, the Appellant appeal is allowed. The impugned order is set-aside against the appellant only accordingly.

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No costs.

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(Justice Manmohan Singh) Chairman

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New Delhi,

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8^th August, 2018

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„d‟

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FPA-FE-111/MUM/2008

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FPA-FE-111/MUM/2008 of Harshad Kantilal Patel v/s The Special Director Directorate of Enforcement, Mumbai

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