Dismissed

FPA-FE-23/CHN/2018 of Lloyd Hartley Martin v/s The Special Director Directorate of Enforcement, Chennai

ATFP11 Jan 2019FPA-FE-23/CHN/2018

Case brief

AI extract

What is this about?

The Appellate Tribunal for Foreign Exchange hearings granted a stay on an order imposing penalties for alleged FEMA violations. The court held that RBI permissions regularized the delay in remittances, found the special director lacked jurisdiction to reinterpret agreements or FEMA provisions, and noted the significant delay in the impugned order before allowing the stay. No pre-deposit was requir

What did the court decide?

Stay of operation of the impugned order levying penalties granted until the final hearing of the appeals.

FPA-FE-23/CHN/2018 of Lloyd Hartley Martin v/s The Special… — Company and Corporate | ATFP (2019)

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APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS & PBPT ACT AT NEW DELHI

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Date of Decision: - 11.01.2019

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(1) MP-FE-254/CHN/2018 (E.H.) MP-FE-131/CHN/2018 (Stay) FPA-FE-22/CHN/2018
Google India Pvt. Ltd.	…	Appellant
Versus
The Special Director
Directorate of Enforcement, Chennai	…	Respondent
(2) MP-FE-255/CHN/2018 (E.H.) MP-FE-133/CHN/2018 (Misc.) FPA-FE-24/CHN/2018
Kent Walker	…	Appellant
Versus
The Special Director Directorate of Enforcement, Chennai	…	Respondent
(3) MP-FE-256/CHN/2018 (E.H.) MP-FE-134/CHN/2018 (Misc.) FPA-FE-25/CHN/2018
Hari Raju Mahadevu	…	Appellant
Versus
The Special Director Directorate of Enforcement, Chennai	…	Respondent
(4) MP-FE-132/CHN/2018 (Misc.) FPA-FE-23/CHN/2018
Lloyd Hartley Martin	…	Appellant
Versus
The Special Director
Directorate of Enforcement, Chennai	…	Respondent

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 1 of 10

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Shri Naresh Thacker, Advocate Shri Udit Jain, Advocate Shri Kaustubh Mishra, Advocate
For the respondent	:	Ms. Aagam Kaur, Legal Consultant
CORAM
JUSTICE MANMOHAN SINGH	:	CHAIRMAN

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JUDGEMENT

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MP-FE-131/CHN/2018 (Stay) & FPA-FE-22/CHN/2018, MP-FE133/CHN/2018 (Misc.) & FPA-FE-24/CHN/2018, MP-FE134/CHN/2018 (Misc.) & FPA-FE-25/CHN/2018, MP-FE132/CHN/2018 (Misc.) &FPA-FE-23/CHN/2018

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The aforesaid appeals have been filed against impugned order No. SDE/SRO/BGZO/09/2018 dated 23.02.2018 passed by the Special Director, Chennai (hereinafter referred to as the Adjudicating Authority).

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In the present appeals, it was alleged by the respondent that the Appellants have contravened Section 6(3)(d) of FEMA, 1999 r/w Regulation 3, 5(3), 6(3) and Paragraph 1 of Schedule III of the Foreign Exchange Management (Borrowing of Lending Foreign Exchange) Regulations, 2000 to the extent of Rs. 363,79,49, 687/- (Rupees Three Hundred and Sixty Three Crores, Seventy Nine Lakhs Forty nine Thousand and Six Hundred and Eighty even Rupees only) and Rs. 1,08,97,416/- (Rupees One Crore Eight Lakhs Ninety Seven Thousand Four Hundred and Sixteen Rupees only).

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In view of the said contravention and allegations against the appellant that the Adjudicating Authority has levied a penalty of Rupees FPA-FE-22, 24, 25 & 23/CHN/2018 Page 2 of 10

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Five Crores on the appellant company and Rupees Twenty Lakhs each on

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each of its Foreign Directors and Five Lakhs on its Indian Director.

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By the order, I propose to decide the stay application filed by the appellant for waiver of pre-deposit.

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The prayer is opposed by the respondent.

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The order was reserved on 27.09.2018. Parties seeks time to file additional written submissions but the same were not filed.

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The brief facts are that two current account transactions with Google Ireland and Google USA respectively: -

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(a) For a Distributor Fee, Google Ireland granted a right to the Appellant to distribute/sell online Ad space under the “Ad Words Program” to advertisers in India. (Clause 1 of Exhibit A @ Pg. 10 & Clause 2.2 @ Pg. 2 of Appeal paper book, Folder III).

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(b) Purchase of goods.

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It is the case of the appellant that both transactions do not involve any borrowings or lending in foreign exchange in any form under Section 6(3)(d) of FEMA as:-

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No loan agreements stipulating a draw down and repayment schedule between the parties.

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No understanding, express or implied, between the parties for a deferred payment of dues.

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 3 of 10

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Interest was neither charged nor paid by the Appellant in both cases.

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No pecuniary gain to the Appellant due to delayed repatriation.

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It is not denied by the respondent that the dues were ultimately in the present transaction(s) were settled as per the Master Circular on Imports. The delay is opposed by the respondent who states that RBI could not condone it and being an independent Authority, the appellant have to be deal with breach of provisions of FEMA as the same were not paid within the prescribed period of time. It is not denied on behalf of the respondent that the provisions of FEMA prohibit transfer of Foreign exchange to any person other than the authorized person unless provided for under FEMA or with the general or special permission of the RBI.- Section 3(a) read with Section 3(b) of the FEMA.

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It is stated on behalf of appellant that the RBI alone has the jurisdiction to direct AD Bank to do or desist from doing any act in relation to remittances in foreign exchange to be made- S 11(1) of FEMA.

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It is stated that the Master Circular on Imports for Goods and Services dated 01.07.2014 (“Master Circular on Imports”) provides for permitting remittances in foreign exchange by the AD Banks. The AD Banks themselves are empowered to permit settlement of import dues beyond 6 months and upto 3 years from the date of shipment due to disputes, financial difficulties etc. See Para B.5(ii) of the Master Circular on Imports.

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 4 of 10

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It is submitted by the appellant that since dues to Google Ireland and Google USA were beyond period of 6 months, permission of the AD Bank was sought vide letters dated 28.03.2012 and 01.03.2011 respectively explaining the reasons for delay. The AD Bank, out of abundant caution, sought permission of RBI vide letters dated 05.02.2013 for allowing the remittances in question. The RBI permitted the AD Bank to allow the remittances vide letters dated 27.05.2014 and 27.08.2014. The said permissions were granted from “the foreign exchange angle under the provisions of FEMA”.

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Counsel for the appellant also submits that there are no violations of the provisions of FEMA or the Regulations post the Permissions granted by the RBI as the permissions were granted by the RBI only after the following-

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a. Expressly requiring the AD Bank to verify the genuineness of the reasons for delay.

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b. Expressly requiring the AD Bank to verify whether there was any pecuniary gain to the Appellant.

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c. Specific confirmation by the Appellant that there was no pecuniary gain to it.

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d. Confirmation by the Appellant that the amounts to be paid were not utilized for any other purpose and that there was no interest paid on the same.

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It is further submitted on behalf of appellant that there was no pecuniary benefit accruing to the Appellant due to the delay in the form of any interest inasmuch as the amounts were part of the current

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 5 of 10

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accounts of the Appellant. Appellant‟s letter dated 02.09.2013 is referred. It is alleged that infact RBI‟s Permissions, referred to at para 9 above, was therefore pursuant to exercise of its jurisdictional discretion after application of mind. The RBI has not treated the two transactions as ECB/deferred payment arrangements. It is also submitted that nothing contrary has been discovered by the respondent after independent investigation. Thus, the decision taken by the RBI was as per law and the question of violations of any provisions does not arise.

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In reply it is stated on behalf of appellant that the Appellants in their application have not only pleaded prima facie case, but also balance of convenience and undue hardship that would be caused to it if the stay is not granted.

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It is settled law that being as Special Act, no authority does have jurisdiction to re-interpret and / or restrict the Permissions granted by the RBI in exercise of its jurisdiction under S.3 read with S.11 of FEMA. – LIC v. Escorts (1986) 1 SCC 264 @ Para 84 .

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Prima facie I am of the view that since nothing contrary has been establish by the respondent in its investigation. Therefore, it is contended on behalf of the appellant that once the permission has been granted by the RBI, the delay stood regularized and there are no violations of the provisions of FEMA. At this stage the presumption is in favour of the appellant that RBI must have been satisfied while condoning the delay.

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 6 of 10

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Counsel for the respondent says that there were no genuine reasons for delay beyond a period of 6 months. Counsel has referred Para 7.11 of the impugned order in support of her submission.

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The reliance is placed on Para A.12(i) of AP (Dir) Circular 9 of 2000 dated 24.08.2000 by the respondent to hold that amounts due for more than 6 months automatically makes the same a deferred payment arrangement/ECB is incorrect. Stringent law can only be applied in the Master Circular on Imports where there is no such condition mandated. Further, Para B.5(ii) expressly provides for settlement of dues by the AD Banks beyond a period of 6 months. Para A.12(ii) in AP (Dir) Circular 9 of 2000 provides for settlement of dues beyond a period of 6 months by the AD Bank in case of dispute, financial difficulties, etc., just as Para B.5(ii) of the Master Circular on Imports.

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The Appellants have prima facie demonstrated that there have been no violations of the provisions of FEMA, the Rules, Regulations and the Master Circular on Imports. Without prejudice to any of the aforesaid, and assuming without admitting that there was a violation, even then the RBI regularized the same by granting the permissions to settle the dues specifically from “FEMA Angle”. The Appellant has also able demonstrated the factual conditions which led to the delay in settlement of import dues.

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The RBI letter expressly states that the permission was issued from foreign exchange angle under FEMA. The limitation of the permission was only in respect of any other applicable laws other than

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 7 of 10

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FEMA. The Respondent is admittedly not seeking to impose penalty for alleged violation of any other law. In view of the aforesaid, the contentions of the Respondent especially at Para 16 are unsustainable. In this regard, the submissions of the Appellants in their Appeals, Stay Applications and the common Synopsis are reiterated.

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Prima facie I am of the view that the respondent has no jurisdiction to reinterpret the terms of the agreement between Google Ireland and Google India. It is settled law that the Court should proceed on the basis that the apparent tenor of the agreement reflects the real state of affairs. – UOI vs. Mahindra & Mahindra Ltd., (1995) 76 ELT 481 (SC).

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All these circumstances show that the undue hardship that will be caused to the Appellants if they are made to make a deposit of any part of their respective penalty which is without basis in law and in any event highly disproportionate to the bona fide actions of the Appellants.

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The decision of Monotosh does not have bearing in the facts and circumstances of the present case. Without prejudice to any of the aforesaid, if anything, the decision in Monotosh Saha actually supports the contentions of the Appellant inasmuch as the Hon‟ble Supreme Court has held that it is undesirable to require the assessee to pay full or substantive part of the demand if it appears that such demand has no leg to stand upon. The relevant extract from the Respondent‟s own cited case is reproduced below:-

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“8. It is true that on merely establishing prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 8 of 10

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undesirable to require the assessee to pay full or substantive part of the demand ” [Emphasis supplied].

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In grounds of the appeal, the appellant has alleged that in the present case, the reply to the Complaint was filed vide letter dated 17.08.2015. The personal hearing in the matter took place on 07.10.2015. A detailed Record of Proceedings dated 07.10.2015 has also been duly generated and provided. Thereafter, as per the directions of the Respondent, Additional Submissions were also filed on 29.10.2015. The impugned order, however, has only been passed on 23.02.2018 (dispatched on 28.02.2018 and received on 05.03.2018), i.e. after more than 2 years and 4 months.

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There are no valid reasons is given about the passing of order for such a huge delay when it was pointed to the counsel for the respondent except, it was stated that the matter be remanded back for fresh hearing.

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The decision referred on behalf of the respondent that the Hon‟ble Supreme Court in Telestar Travels does not have any application in the present case in as much as the decision therein is contingent on the fact that the impugned order does no suffer from any other illegality. In the present case, the Appellants have specifically pleaded and pointed out all the irregularities that the Impugned Order suffers.

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Even the facts and circumstances in Telestar are completely different from the present case. In Telestar Travels, the facts pertained to violations of FERA in the background of a paper company abroad

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FPA-FE-22, 24, 25 & 23/CHN/2018

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Page 9 of 10

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whereas in the present case, the issue is at best interpretative of the provisions of FEMA and the Master Circular on Imports.

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Further, in the present case, the RBI has specifically allowed the settlement of dues from FEMA angle which was not the case in Telestar. It is evident that the appellant in Telestar never raised the issue of delay before either the Hon‟ble Tribunal nor the Hon‟ble High Court. Thus, there were no findings on the aforesaid aspect in the lower courts prior to the same being considered by the Hon‟ble Supreme Court. For all the aforesaid reasons, the decision of Telestar has no application in the present case.

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In the light of the prima facie has been made by the appellant and the appellant will suffer hardship if the appellant is asked to deposit the penalty amount. After having through the facts and material placed on record, I am of the opinion that the chances of success of appeal are more than the failure of appeal. Thus, the prayer is allowed. M.P is disposed of. There shall be a stay of operation of the impugned order till the final decision of appeals.

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List the appeal for final hearing on 1^st April, 2019. Both the parties in the meanwhile complete the pleadings. The above order shall have no bearing when the appeal will be considered on merit.

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(Justice Manmohan Singh) Chairman

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New Delhi, 11^th January, 2019

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„D‟

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FPA-FE-22, 24, 25 & 23/CHN/2018

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