Dismissed

FPA-FE-11/MUM/2007 of Shri Kumar S. Taurani v/s The Special Director Directorate of Enforcement, Mumbai

ATFP9 Jan 2020FPA-FE-11/MUM/2007

Case brief

AI extract

What is this about?

The Appellate Tribunal dismissed appeals filed against penalty orders for violation of FEMA provisions regarding investments in overseas subsidiaries without prior RBI approval. The court found no post-facto approval existed, upheld individual liability, and rejected claims of disproportionate penalty.

What did the court decide?

The appeals were dismissed; the impugned orders imposing penalties were upheld; alternate reliefs were rejected.

FPA-FE-11/MUM/2007 of Shri Kumar S. Taurani v/s The Special Director Directorate of Enforcement, Mumbai — ATFP (2020) — LawSathi Research

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

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Date of Decision: 09.01.2020

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(1) MP-FE-510/MUM/2019 (Stay) FPA-FE-10/MUM/2007

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M/s. Tips Industries Ltd. … Appellant Versus The Special Director Directorate of Enforcement, Mumbai … Respondent

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(2) MP-FE-511/MUM/2019 (Stay) FPA-FE-11/MUM/2007 Shri Kumar S. Taurani … Appellant

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Versus

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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 Pragyan Sharma, Advocate Shri Udit Jain & Archit Gupta, Advocates
For the respondent	:	Ms. Aagam Kaur, Legal Consultant
CORAM
SHRI G.C. MISHRA	:	ACTING CHAIRMAN

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JUDGEMENT

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FPA-FE-10-11/MUM/2007

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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 Rs. 70,00,000/- (Rupees Seventy Lakh Only) on Tips Industries Ltd. and penalty of Rs. 20,00,000/- (Rupees Twenty Lakh Only) on Shri Kumar S. Taurani for violation of Section 6(3)(a) of FEMA, 1999 r/w Regulations 5, 6 & 13 of

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FPA-FE-10-11/MUM/2007

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Page 1 of 18

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the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000.

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The main allegation against the appellant company is that it had made investment in three step-down subsidiaries, by name Dashmesh International Ltd. New Jersey (incorporated on 04.02.2000 ), Dashmesh International Ltd. California (incorporated on 19.05.2000) & Dashmesh International Music S.A., South Africa (incorporated on 15.12.1999), through its Wholly Owned Subsidiary (WOS) Dashmesh International Ltd., Mauritius (DILM) without the permission of the RBI.

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The appellant company acquired the shares of DILM on 13.03.2001. The DILM had acquired the entire equity in the two American Step-down subsidiaries on 22.08.2001 & the South Africans step-down subsidiary on 01.08.2001. The investment made by DILM in the step down subsidiaries during the period of May, 2001 to February, 2002.

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In the list of dates & events filed by the appellant company, it is stated that the appellant company filed an application in form ODA (for investments in DILM to the RBI on 07.06.2001 and RBI granted clearance by letter dated 22.11.2001.

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Thus, even when there application was pending with the RBI, the appellant company through its WOS (DILM) made further investment totaling US $ 7,54,100 in the three step-down subsidiaries.

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Following are the main contention of the appellant:-

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(i) That DILM was engaged in International Trading in blank

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and pre-recorded audio cassettes and CD-ROMs and in the course of expansion of operation into USA and South Africa, for

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FPA-FE-10-11/MUM/2007

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Page 2 of 18

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compliance with local legislations, Dashmesh International Ltd., New Jersey, Dashmesh International CA Ltd., California and M/s. Dashmesh International Music S.A. (Proprietary) Ltd. South Africa wherein corporated on 04.02.2000, 19.05.2000 and 15.12.1999.

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(ii). DILM acquired the entire equity in Dashmesh International Ltd., New Jersey on 22.08.2001, Dashmesh International CA Ltd., California on 22.08.2001 and M/s. Dashmesh International Music SA (Proprietary) Ltd., South Africa on 01.08.2001.

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(iii). On 22.11.2001 the Reserve Bank of India, by its letter, granted the clearance to Company to make the investments and loan as aforesaid.

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(iv) On a query from the Reserve Bank 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.

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(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.

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FPA-FE-10-11/MUM/2007

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(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.

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(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 out of the remittances made by the Company. A further sum of US $ 50,000 was remitted by DILM to Dashmesh International Music SA (Proprietary) Ltd., South Africa from out of DILM’s internal accruals.

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(viii). On 04.03.2005, however, as the business of DILM and the step-down subsidiaries did not perform to expectations and the WOS and the step-down WOSs were incurring losses, the Company applied to the Reserve Bank of India for permission to close down the WOS.

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(ix) On 20.07.2005, by its letter, the Reserve Bank of India accorded its approval to the Company’s application for closure of the WOS and advised the Company to surrender the holding licence, if issued, and to produce evidence of repatriation of a sum of AED 2,24,095.22 towards realizable equity investment.

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On the other hand, the Legal Consultant appearing for the Respondent contended the following:-

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(i) That the appellant contends that the technical lapses were noticed only when the Company approached the RBI for conversion

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FPA-FE-10-11/MUM/2007

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of loan to equity, however it is pertinent to note that the appellant herein has hidden vital facts from the RBI. It is seen that while obtaining initial permission from RBI, the appellant was exchanging correspondence with RBI on 20.08.2001, 14.09.2001 and 30.10.2001 but still the Appellants refrained from divulging the information of the acquisition. The appellant only after a delay of two years informed RBI on 20.09.2003 whereas they were aware vide permission granted to them on 22.11.2001, that prior approval needs to be sought for the transactions.

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(ii) On a combined reading of Section 6(3)(a) with Regulation 5, 6 & 13 of Foreign Exchange Management and directions issued by RBI vide permission dated 22.11.2001 it is apparent that “prior approval” of the RBI is required for any further re-investment by the Company. The intent of the legislature was to seek prior permission, and hence the word “prior” was introduced.

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(iii) Hence, it is aptly clear that the legislature provides for prior approval and nowhere can we state that any permission can be sought from the RBI after the investment has taken place. Additionally there is no RBI Circular or Notification or provision under the Act wherein it is stipulated that where prior approval needs to be sought the RBI can also grant post facto approvals.

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(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.

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FPA-FE-10-11/MUM/2007

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(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.

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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:-

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(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

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Life Insurance Corporation of India vs. Escort Ltd. and Ors., (1986) 1 SCC 264

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Continental Construction Ltd. & Ors. vs. Special Director of Enforcement, 2016 (1) JCC 690

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LG Electronics India Pvt. Ltd. & Anr. vs. The Joint Director, Directorate of Enforcement, Delhi, FPA-FE-10/DLI/2018 decision on 21.12.2018

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Jiwanram Sheoduttarai Industries Pvt. Ltd. and Ors. vs. The Special Director, Directorate of Enforcement, Kolkata, FPAFE-24-26/KOL/2017 decided on 11.06.2019

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Google India Pvt. Ltd. & Ors. vs. The Special Director, Directorate of Enforcement, Chennai decided on 11.01.2019 (Interim Order)

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(ii) Without prejudice, the quantum of penalty imposed under the Impugned Order is bereft of any rationale resulting in arbitrary exercising of discretion by the Respondent

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FPA-FE-10-11/MUM/2007

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Innovative Tech Pacl Ltd. vs. Special Director of Enforcement, 2017 (356) E.L.T. 193 (Del.)

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Bata India Ltd. vs. The Special Director, Enforcement of Directorate, New Delhi, 1996 SCC OnLine Cal 93.

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(iii) Without prejudice, the quantum of penalty imposed on the Appellant Company ought to be proportionate to the alleged contravention

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Chairman, SEBI vs. Shriram Mutual Funds, (2006) 5 SCC 361

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Jaipur IPL Cricket (P.) Ltd. vs. Special Director, Enforcement Directorate, Mumbai MANU/AE/0001/2017

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(iv) No penalty ought to be levied on Mr. Kumar S. Taurani (Chairman and Managing Director) of the Appellant Company.

¶63

Umesh K. Modi vs. Deputy Directorate of Enforcement 2014 (3) JCC 2028

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SMS Pharmaceuticals Ltd. (I) vs. Neeta Bhalla (2005) 8 SCC 89

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Saroj Kumar Poddar vs. State (NCT of Delhi) (2007) 3 SCC 693

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In Kavita Dogra vs. Director of Enforcement (2014) 182 Com Cas 376 and National Small Industries Corporation Ltd. vs. Harmeet Singh Paintal (2010 3 SCC 330)

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The relief(s) claimed by the appellant are as follows:

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(i) quash and set-aside that the Impugned Order as the same is bereft of reasons for holding the Appellant guilty of the alleged

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FPA-FE-10-11/MUM/2007

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contraventions of FEMA and Regulations, 2000 and is ex-facie contrary to the records.

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(ii) Reduce the quantum of penalty and limit it to the extent of the pre-deposit (amounting INR 28,00,000) already made by the appellant company vide Pay Order No. 282148.

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(iii) quash the penalty imposed upon Managing Director-Mr. Kumar S. Taurani and direct the Respondent to refund the amount of INR 8,00,000 made as pre-deposit.

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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.

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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:

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Section 6(3)(a) Capital Account Transactions

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(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:-

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(a) transfer or issue of any foreign security by a person resident in India;

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FPA-FE-10-11/MUM/2007

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Now omitted Sub-section (3) by Act 20 of 2015, sec. 139 (c ) (w.e.f. 14-5-2015)

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Regulation 5. Prohibition on Direct Investment outside India

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Save as otherwise provided in the Act, rules or regulations made or directions issued thereunder, or with prior approval of the Reserve Bank,

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(1) no person resident in India shall make any direct investment outside India; and

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(2) no Indian party shall make any direct investment in a foreign entity engaged in real estate business or banking business.

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Regulation 6. Permission for Direct Investment in certain cases

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(1) Subject to the conditions specified in sub-regulation (2), (and Regulation 7 in case investment in financial services sector) an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India.

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(2) (i) The total financial commitment of the Indian party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 100% of the net worth of the Indian Party as on the date of the last audited balance sheet;

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Explanation : - For the purpose of determining the ‘total financial commitment’ within the limit of 100% or as decided by the Reserve Bank from time to time, of the net worth the following shall be reckoned, namely:

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(a) Remittance by market purchases namely in freely convertible currencies; in case of Bhutan, investment made in freely convertible currencies or equivalent Indian Rupees, in case of Nepal investments made only in Indian Rupees;

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(b) Capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11;

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(c) Hundred per cent. of the value of guarantees issued by the Indian party to or on behalf of the joint venture company or wholly owned subsidiary;

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(d) Investment in agricultural operations through overseas offices or directly;

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(e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines;

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(f) Fifty per cent. of the value of performance guarantee issued by the Indian party to or on behalf of the JV/WOS.

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FPA-FE-10-11/MUM/2007

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Explanation.- In cases where invocation of the performance guarantees of breach the ceiling for the financial exposure of 100 per cent., 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.

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(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.

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Overseas direct investment by an Indian party in Pakistan shall henceforth be considered under the approval route under regulation 9 of this Notification.]

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(ii) The direct investment is made in an overseas Joint Venture or Wholly owned subsidiary engaged in a bonafide business activity.

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(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.

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(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. (v) The Indian Party routes all transactions relating to the investment in a Joint Venture/Wholly Owned Subsidiary through only one branch of an authorised dealer to be designated by it.

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Explanation: -

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The Indian Party may designate different branches of authorised dealers for different Joint Ventures/Wholly Owned Subsidiaries outside India.

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(vi) The Indian Party submits duly completed Part I of the Form ODI, as prescribed by the Reserve Bank from time to time, to the designated branch of an authorised dealer.

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(vii) Indian party shall make no direct investment in an overseas entity [set up or acquired abroad directly as JV/WOS or indirectly as Step Down Subsidiary] located in the countries identified by the Financial Action Task Force (FATF) as within “non co-operative countries and territories” as per list available on FATF website www.fatf-gafi.org or as notified by the Reserve Bank of India from time to time.]

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FPA-FE-10-11/MUM/2007

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(3). Investment under this regulation may be funded out of one or more of the following sources, namely-

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(i). out of balance held in the Exchange Earners' Foreign Currency account of the Indian party maintained with an authorised dealer in accordance with Regulation 4 of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000;

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(ii). drawal of foreign exchange from an authorised dealer in India shall not exceed 100%, or as decided by the Reserve Bank from time to time, of the net worth of the Indian Party as on the date of last audited balance sheet;

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Explanation : - For the purpose of the limit of 100%, or as decided by the Reserve Bank from time to time, of the net worth, the following shall be reckoned, namely-:

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(a) cash remittance by market purchase;

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(b) capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11 and 12;

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(c) [hundred per cent of the amount of guarantees] issued by the Indian party to or on behalf of the Joint Venture company or Wholly Owned Subsidiary;

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[Explanation.-An Indian Party may offer to a person resident outside India any form of guarantees, that is, corporate or personal/primary or collateral/guarantee by promoter company in India/guarantee by group company, sister concern or associate company in India, provided that:

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(a) total ‘financial commitment’ including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party and

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(b) no guarantee is ‘open ended’]

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(d) utilisation of the amount raised by issue of ADRs/GDRs by the Indian party;

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(e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines.

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(f) Swap of shares

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FPA-FE-10-11/MUM/2007

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(g) ADR/GDR Stock Swap subject to the valuation norms and sectoral cap.]

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(h) Fifty per cent of the value of performance guarantee issued by Indian Party to or on behalf of the JV/WOS.

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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.

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(i) 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.

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Explanation :

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For the purpose of reckoning net worth of an Indian party, the net worth of its holding company (which holds at least 51% stake in the Indian Party) or its subsidiary company (in which the Indian party holds at least 51% stake) may be taken into account to the extent not availed of by the holding company or the subsidiary independently and has furnished a letter of disclaimer in favour of the Indian Party:

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Provided further that the ceiling mentioned in subclause (2)(i) shall not apply where the investment is made out of balances held in its EEFC account, maintained in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000, as amended from time to time.

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(4) (i) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture/Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture. Notwithstanding the above regulation, the following shall also be permitted.

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(ii) An Indian Party may extend corporate guarantee on behalf of its first generation step down operating company within the prevailing limit for overseas direct investment.

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FPA-FE-10-11/MUM/2007

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Explanation.- Issue of corporate guarantee on behalf of second level or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51 per cent, or more stake in the overseas subsidiary for which such guarantee is intended to be issued.

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(iii) The Indirect resident individual promoters of the Indian Party may issue personal guarantee on behalf of the overseas JV/WOS of the Indian Party provided the provisions under regulations 6 are fulfilled by the Indian Party and further provided that-

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(a) total ‘financial commitment’ including all forms of guarantees within the overall ceiling stipulated for overseas investment by an Indian party; and

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(b) no guarantee is ‘open ended’.

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(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.

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(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.

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(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:

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Provided that-

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(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;

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(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 details of the investment proposed.

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(6)(a) For the purposes of investment under this Regulation by way of remittance from India in an existing company outside India, the valuation of shares of the company outside India shall be made, -

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(i) where the investment is more than USD 5 (Five) million, by a Category I Merchant Banker Registered with Securities and Exchange Board of India (SEBI), or

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an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and

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(ii) in all other cases, by a Chartered Accountant or a Certified Public Accountant.

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(b) For the purposes of investment under this Regulation by acquisition of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party’s shares, the valuation of shares of the company outside India shall in all cases, be carried out by a Category I Merchant Banker registered with the Securities and Exchange Board of India (SEBI) or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country.

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Regulation13. Post investment changes /additional investment in existing JV/WOS

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(1) A JV/WOS set up by the Indian party as per the Regulations may diversify its activities / set up step down subsidiary/ alter the shareholding pattern in the overseas entity:

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Provided the Indian party reports to the Reserve Bank, the details of such decisions taken by the JV/WOS within 30 days of the approval of those decisions by the competent authority concerned of such JV/WOS in terms of local laws of the host country, and, include the same in the Annual Performance Report required to be forwarded annually to the Reserve Bank in terms of Regulation 15.

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The pleadings of the appellants are that the RBI has given postfacto approval to the aforesaid investments made in further step-down subsidiaries, for that the quantum of penalties imposed are disproportionate, for that the appellant Mr. Kumar S. Taurani (Chairman & Managing Director) of the appellant company should not have been penalised.

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During the course of the argument the learned counsel for the appellant has drawn the attention to the letters of RBI 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 FPA-FE-10-11/MUM/2007 Page 14 of 18

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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.”

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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 to the aforesaid investment or any post approval was granted by the RBI. I have gone through the relevant judgment cited by the appellants. Those judgments are not applicable to the present fact and circumstances of the present appeals as there is no post-facto approval of RBI. Therefore, it is concluded that neither there is any prior approval nor there is any post approval of the RBI regarding the said investments and it is held that the Adjudicating Authority has rightly held the appellant company responsible for the contravention of the aforesaid provisions.

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It is the arguments of the appellant Mr. Kumar S. Taurani that he is not responsible for the day-to-day affairs of the company and the Adjudicating Authority has not been able to substantiate why this appellant has been penalized. No doubt the appellant has been penalized by the Adjudicating Authority with Rs. 20,00,000/- for contravention of

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provision of law read with Regulations. It is seen from the record that an ODA has been filed before the RBI alongwith declaration vide ODA dated 07.06.2001 the said ODA form was sign by Mr. Kumar S. Taurani as Managing Director for M/s. DILM. This go to show that he was responsible for the activities of the appellant company. Besides, neither the appellant company nor Mr. Kumar S. Taurani could be able to show any other document to prove that somebody else is the person responsible for the day-to-day affairs of the company not Mr. Kumar S. Taurani. The following judgments

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Umesh K. Modi vs. Deputy Directorate of Enforcement 2014 (3) JCC 2028

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SMS Pharmaceuticals Ltd. (I) vs. Neeta Bhalla (2005) 8 SCC 89

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Saroj Kumar Poddar vs. State (NCT of Delhi) (2007) 3 SCC 693

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In Kavita Dogra vs. Director of Enforcement (2014) 182 Com Cas 376 and National Small Industries Corporation Ltd. vs. Harmeet Singh Paintal (2010 3 SCC 330)

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cited by the appellants are not applicable in the given fact and circumstances of the case.

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There are clinching evidence that Mr. Taurani was responsible for day-to-day affairs of the company. Therefore, it is held that the Adjudicating Authority has rightly made Mr. Taurani responsible for the said contraventions and imposition of penalty.

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It is further contended by the learned counsel for the appellant company that the quantum of penalty imposed are not proportionate to the alleged contravention. The Section 13 of the FEMA, 1999 provides

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the provision for the imposition of penalties. The said provisions reads as follows:-

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13. Penalties.—

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(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. …………………………………………………………………..

¶177

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.

¶178

During the course of argument the learned counsel for the appellants submitted, on query by the Bench, submitted that more than six crores of INR were invested in the step-down subsidiaries. If it is so the imposition of Rs. 70 lakhs on the appellant company and Rs. 20 lakhs on the Managing Director is not disproportionate. In my view the Adjudicating Authority has taken a lenient view and has imposed penalty lessor than the proportionate penalty. In the present fact and circumstances of the case the judgments stated by the appellant is not helpful to the case of the appellant.

¶179

In view of the discussions made above, I am of the considered view that there is no illegality in the impugned order passed by the Special Director, (Appeals). I held that there are contravention of the provisions of section 6(3)(a) of the FEMA and Regulations 5, 6 & 13. The

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Adjudicating Authority has also rightly held that Mr. Taurani has violated the aforesaid provisions in terms of Section 42(1) of FEMA.

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The alternate reliefs sought by the appellants are considered. I do not find any grounds to reduce the penalties already imposed by the Adjudicating Authority. Therefore, the prayer for the alternate reliefs is rejected.

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