Remanded

FPA-FE-40/MUM/2014 of Shri B.K. Goenka v. The Special Director Directorate of Enforcement, Mumbai

ATFP10 Sept 2024FPA-FE-40/MUM/2014

Case brief

AI extract

What is this about?

The Appellate Tribunal under SAFEMA disposed of appeals against penalties imposed for alleged breaches of FEMA regarding investment in a Cyprus JV. The Tribunal found the impugned order lacked reasoned analysis on key legal and factual aspects and remanded the matter for fresh adjudication with a reasoned order.

What did the court decide?

Impugned order set aside and matter remanded to the learned adjudicating authority for fresh adjudication and passing of a reasoned order.

FPA-FE-40/MUM/2014 of Shri B.K. Goenka Vs. The Special… — Company and Corporate | ATFP (2024)

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APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

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(1) FPA-FE-40/MUM/2014 Shri B.K. Goenka	…	Appellant
(2) FPA-FE-41/MUM/2014
M/s. Welspun Corp. Ltd.	…	Appellant
(3) FPA-FE-42/MUM/2014
M/s. Krishiraj Trading Ltd.	…	Appellant
(4) FPA-FE-43/MUM/2014
M/s. Welspun Wintex Ltd.	…	Appellant
(5) FPA-FE-44/MUM/2014
Shri Balkrishna Goenka	…	Appellant
(6) FPA-FE-45/MUM/2014
Shri Rajesh Mandawela	…	Appellant
(7) FPA-FE-46/MUM/2014
Shri Lal T. Hotwani	…	Appellant
(8) FPA-FE-47/MUM/2014
Shri Murarilal Mittal	…	Appellant
(9) FPA-FE-48/MUM/2014
Shri B.K. Misra	…	Appellant
(10) FPA-FE-49/MUM/2014
Shri K.H. Vishwanathan	…	Appellant
(11) FPA-FE-50/MUM/2014
Shri Raj Kumar Jain	…	Appellant
(12) FPA-FE-51/MUM/2014
Shri Nirmal Gangwal	…	Appellant
FPA-FE-40-53/MUM/2014		Page 1 of 18

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(13) FPA-FE-52/MUM/2014
Shri Asim Chakraborty	… Appellant
(14) FPA-FE-53/MUM/2014
Shri Ashok Jain	… 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	: Mr. Naresh Thacker, Adv. Mr. Udit Jain, Adv.
For the respondent	: Mr. Mahip Datta Parashar, Adv. Mr. Rahul Mehta, Adv.
CORAM
SHRI V. ANANDARAJAN	: MEMBER

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ORDER 10.09.2024

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The present appeals arise from the order of the learned Special Director of Enforcement dated 07.08.2013 (hereafter referred to as “the impugned order”). The proceedings before the learned Special Director arose from a complaint dated 10.10.2011 filed by the Assistant Director, Directorate of Enforcement, Mumbai which led to issue of Show Cause Notices dated 21.10.2011 for alleged contraventions of various provisions of the Foreign Exchange Management Act, 1999 (“FEMA, 1999”).

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Facts in Brief

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2. The relevant facts, briefly, are that the Reserve Bank of India (RBI) vide letter dated 22.04.2009 informed the Directorate of Enforcement (ED) that the Welspun Group had formed a Joint Venture (JV) in Cyprus,

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FPA-FE-40-53/MUM/2014

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Page 2 of 18

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namely, Red Lebondal Ltd., Cyprus (“RLL Cyprus”) in which the equity

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capital was subscribed by the following entities:

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Sl. No.	NAME	EQUITY HOLDING
1.	Intech Metal SA (An entity resident outsideIndia)	19.89%
2.	Sh. B.K. Goenka	31.10% (560 shares of Euro1each)
3.	Welspun Gujarat Stahl Rohren Ltd.	25% (450 shares of Euro1each)
4.	Welspun Wintex Ltd.	12% (216 shares of Euro1each)
5.	Krishiraj Trading Ltd.	12% (216 shares of Euro1each)

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3. The RBI further informed that the persons at Sl. Nos. 2, 3, 4 and 5 above had not sent remittance for subscription of equity shares in the said JV, RLL Cyprus, and therefore, the formation of the JV, RLL Cyprus was not taken on record by the RBI. It was further noted that the said JV, RLL Cyprus, had availed credit facility to the tune of USD 52 million from ICICI Bank, London. The credit facility was extended by ICICI Bank, London on the condition that liability of credit facility shall be secured by joint and several corporate guarantees of the Indian partners of the JV, RLL Cyprus, subject to maximum commitment as below:

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Welspun Gujarat Stahl Rohren Ltd. : USD 14Mn Welspun Wintex Ltd. . : USD 27Mn Krishiraj Trading Ltd. . : USD 56Mn

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4. The RBI opined that the Bank guarantee was assured in favor of the RLL Cyprus, an overseas concern where the Indian companies had no equity stake. The three entities at Sl. No. 3, 4 and 5 of the table above had filed separate compounding applications dated January 9, 2009. All the three companies, however, withdrew their respective compounding applications vide their letters dated March 23, 2009. Accordingly, all the

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FPA-FE-40-53/MUM/2014

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three compounding applications were disposed of by returning the same vide RBI‟s letter dated 22.04.2009.

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5. The above information was forwarded to the ED for necessary action under FEMA, 1999 and investigation with regard to the utilization of the loan raised by the overseas JV, namely, RLL Cyprus.

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6. Based on the said reference from the RBI, investigations were initiated by the Directorate. Consequent to the investigations conducted, the complaint dated 10.10.2011 (referred to in para-1 above) was filed by the Assistant Director before the Ld. Special Director. After conducting adjudication proceedings in the matter, the Ld. Special Director concluded that the investment in the overseas JV by the noticees had been proved to be in contravention of the Foreign Exchange Management (Transfer on Issue of Any Foreign Security) Regulations, 2004 (hereafter referred to as “FEMA 120/2004”, and the Indian companies were not permitted to extend guarantees for the purpose of securing loan by the said overseas JV, namely, RLL Cyprus. He held the appellants herein guilty of the following contraventions:

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Shri Balkrishna Goenka

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Contravention of the provisions of Section 6(3) (a) of FEMA read with Regulation 5 of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 for unauthorized direct investment outside India.

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Contravention of the provisions of Section 6(3) (a) of FEMA read with Regulation 6(2)(ii) of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 by making direct

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FPA-FE-40-53/MUM/2014

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investment in an overseas JV which was not engaged in a bona fide business activity.

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Welspun Gujarat Stahl Rohren Ltd. Welspun Wintex Ltd. Krishiraj Trading Ltd.

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Contravention of the provisions of Section 6(3)(a) of FEMA read with Regulation 5(1) of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 for making direct investment outside India otherwise than provided under FEMA.

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Contravention of the provisions of Section 6(3)(a) of FEMA read with Regulation 6(2)(ii) of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 by making direct investment is in an overseas JV which was not engaged in a bona fide business activity.

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Contravention of the provisions of provisions of Section 6(3)(a) read with Regulation 6(4) of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 by extending guarantees to the joint venture abroad without having made investment by way of contribution to the equity capital of the joint venture.

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Contravention of the provisions of Section 6(3)(j) of FEMA read with Regulation 3 of the Foreign Exchange Management (Guarantees) Regulations, 2000 dared 3rd May 2000 and further read with Regulation 5 of the said Regulations for giving guarantees in respect of foreign currency term loans facility availed by M/s RLLC without complying with the provisions of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004.

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FPA-FE-40-53/MUM/2014

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Coming to the charges against the directors of the companies, he found that Shri Balkrishna Goenka was the Group Chairman and main promoter of the Welspun Group. As Director of M/s Welspun Gujarat Stahl Rohren Ltd. (now known as Welspun Corporation Ltd.) and M/s Krishiraj Trading Ltd., he was the person in charge and responsible to the respective companies for the conduct of their respective business, during the relevant period.

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7. Further, he found that the following persons, as Directors of the respective companies, were the persons in charge and responsible to the respective companies for the conduct of their respective business, during the relevant period:

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Sh. Rajesh R. Mandawewala: Director of M/s Welspun Gujarat Stahl Rohren Ltd. (now known as Welspun Corporation Ltd.), M/s Welspun Wintex Ltd. and M/s Krishiraj Trading Ltd.

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Sh. Lal T Hotwani: Director of M/s Krishiraj Trading Ltd.

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Sh. Muralilal Mittal: Director of M/s Welspun Gujarat Stahl Rohren Ltd.

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Sh. B.K. Mishra: Director of M/s Welspun Gujarat Stahl Rohren Ltd. (now Welspun Corporation Ltd.).

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Sh. K. H. Vishwanathan: Director of M/s Welspun Gujarat Stahl Rohren Ltd. (now Welspun Corporation Ltd.)

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Sh. Raj Kumar Jain: Director of M/s Welspun Gujarat Stahl Rohren Ltd. (now Welspun Corporation Ltd.)

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Sh. Nirmal Gangwal: Director of M/s Welspun Gujarat Stahl Rohren Ltd. (now Welspun Corporation Ltd.)

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Sh. Asim Chakraborty: Director of M/s Welspun Gujarat Stahl Rohren Ltd. (now Welspun Corporation Ltd.)

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Sh. Ashok Jain: Director of M/s Welspun Wintex Ltd.

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8. The Ld. Special Director noted that the above persons had not furnished before him any evidence to prove that the contravention by the FPA-FE-40-53/MUM/2014 Page 6 of 18

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company had taken place without their knowledge or that they exercised all due diligence to prevent such contravention. In view of the above, he held them responsible for the contraventions by the company, and found them guilty, in terms of Sec. 42(1) of the FEMA.

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Based on his findings as above, in exercise of the powers conferred in him under Section 13(1) of the FEMA, 1999, he passed the impugned order imposing the following penalties:

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Sl. No.	NAME	PENALTY IMPOSED (Rs.)
1.	Sh. Balkrishna Goenka	Rs 2,00,00,000/-
2.	M/s. Welspun Corporation Ltd.*	Rs 7,50,00,000/-
3.	M/s Krishiraj Trading Ltd.	Rs 28,00,00,000/-
4.	M/s Welspun Wintex Ltd.	Rs 14,00,00,000/-
5.	Sh. Balkrishna Goenka, Director of M/s. Welspun Corporation Ltd.*, Welspun Wintex Ltd. and M/s KrishirajTradingLtd.	Rs 1,00,00,000/-
6.	Rajesh R. Mandawewala, Director of M/s M/s. Welspun Corporation Ltd.*, M/s Welspun Wintex Ltd. andM/sKrishirajTradingLtd.	Rs 75,00,000/-
7.	Lal T Hotwani, Director of M/s Krishiraj Trading Ltd.	Rs 25,00,000/-
8.	Muralilal Mittal, Director of M/s. Welspun Corporation Ltd.*	Rs 25,00,000/-
9.	Sh. B.K. Mishra, Director of M/s M/s. Welspun Corporation Ltd.*	Rs 25,00,000/-
10.	Sh. K. H. Vishwanathan, Director of M/s M/s. Welspun Corporation*	Rs 25,00,000/-
11.	Sh. Raj Kumar Jain, Director of M/s M/s. WelspunCorporation Ltd. *	Rs 25,00,000/-
12.	Sh. Nirmal Gangwal, Director of M/s M/s. WelspunCorporation Ltd. *	Rs 25,00,000/-
13.	Sh. Asim Chakraborty, Director of M/s M/s. WelspunCorporation Ltd.*	Rs 25,00,000/-
14.	Sh. Ashok Jain, Director of M/s Welspun Wintex Ltd.	Rs 25,00,000/-

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* Formerly known as M/s Welspun Gujarat Stahl Rohren Ltd.

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9. Aggrieved by the said order of the Ld. Special Director, the

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appellants herein have filed these appeals assailing the impugned order

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on various factual and legal grounds.

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FPA-FE-40-53/MUM/2014

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Arguments on Behalf of the Appellants

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10. The learned counsel for the appellants dwelled upon the factual background of the case at great length. It is submitted that a company called Red Lebondal Limited, Cyprus (RLL, Cyprus) was incorporated on 21.05.2007. Certificate of Incorporation of the said company dated 21.05.2007, Register of Members, as also a Certificate of Ministry of Commerce, Industry and Tourism dated 23.05.2007 have been placed on record by the appellants. It is submitted that initially, the said company (RLL, Cyprus) was a single-member company with 1800 shares of Euro 1 each. All the shares of the company were held by M/s CCY Services Ltd. and were unpaid.

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11. Subsequently, on 22.11.2007 shares of RLL, Cyprus was transferred to M/s Intech Metals, SA (an entity resident outside India) and four Indian persons, i.e., three Indian companies and one individual, all belonging to the Welspun Group as follows:

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M/s Intech Metals SA	358 Shares
M/s Welspun Corporation Ltd.	450 Shares
M/s Welspun Wintex Ltd.	216 Shares
M/s Krishnaraj Trading Ltd	216Shares
Sh. Balkrishan Goenka	560 Shares

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12. It is submitted that the purpose of acquisition of the company (RLL, Cyprus) was to explore global opportunities in steel and textile sectors. The shares were transferred to the aforesaid Indian persons (three companies and an individual) and share certificates were received on 22/12/2007. It was stressed upon by the learned counsel that the

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transaction was one of purchase of existing shares. The Euro 1800 price of the shares subscribed to the Indian entities also remained unpaid and as per the agreement, the same was to be paid upon call being made by RLL, Cyprus.

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13. Subsequent to the above, RLL decided to avail a credit facility of USD 52 Mn. from ICICI, UK, which was extended by the latter subject to the condition that it be secured through corporate guarantees of the Indian entities namely WCL, WWL and KTL. Accordingly, the three Indian Entities provided the corporate guarantees on 22.12.2007 to the extent of USD 14 Mn, USD 27 Mn and USD 56 Mn. respectively.

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14. RLL utilized the credit facility availed from ICICI, UK to the extent of USD 50.5 Mn. to subscribe to 1,97,11,184 unsecured fully convertible debentures of Welspun Power and Steel Ltd. (now Welspun Steel Ltd.). It is reiterated that the very purpose of establishment of RLL, Cyprus was to explore global opportunities in steel and textiles sectors, and Welspun Power and Steel Ltd. was already an established entity in the steel sector with a huge business not only in India but other countries such as Saudi Arabia, US etc. It is also submitted that the purpose of availing the credit facility, namely, to invest in the said company was also clearly stated while availing the credit facility from the ICICI, London.

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15. Thereafter, the Indian entities filed Form ODI (Overseas Direct Investment) for issuance of corporate guarantee and requested for issue of single Unique Identification Number ('UIN') by RBI through its authorized dealer, the Punjab National Bank (PNB). The PNB, forwarded the said ODI forms with request to the RBI on 28.12.2007. The RBI on 18.03.2008 called for an explanation from PNB for non-reporting of the FPA-FE-40-53/MUM/2014 Page 9 of 18

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equity stake. Vide its letter dt. 30.07.2008, the PNB recorded that the Indian entities had agreed to acquire' shares of RLL but no amount had been remitted pending receipt of UIN. However, vide letter dt. 15.12.2008, RBI alleged violation of Regulation 6(4) of FEMA 120/2004. On 09.01.2009, Indian entities filed compounding applications, which, however, were withdrawn on 23.03.2009 as there was no contravention involved in the transaction according to the appellants. Vide letter dt. 08.04.2009 addressed to the PNB, the Indian entities requested for remittance of share subscription money to RLL, Cyprus. However, vide their letter dt. 13.04.2009, the PNB responded by saying that remittance can be made only post issuance of UIN.

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16. The RBI returned compounding applications vide letter dated 23.04.2009 and also informed ED to investigate the matter vide its letter dated 22.04.2009.

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17. Consequently, a Show Cause Notice (SCN) dated 21.10.2011 was issued to Indian persons by the Directorate of Enforcement (ED) alleging contravention of Section 6(3)(a) of FEMA, 1999 read with Regulation 3, 5, 6(2)(ii) & 6(4) of the aforementioned FEMA 120. The appellants herein were called upon to show cause why action ought not to be taken against them for violation of Section 6(3)(a) of FEMA r/w Sec 42 r/w Reg. 6(4) of FEMA 120.

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18. The Indian persons, thereafter, filed another compounding application on 02.08.2012, which was also returned by RBI. Yet another compounding application was filed by them on 31.08.2012, which was rejected by a letter dated 17.10.2012 which is also placed on record.

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19. Responding to the SCN, a reply dated 11.10.2012 was filed by appellants before the respondent Directorate. The proceedings initiated by the Directorate through the issue of the aforesaid SCN eventually culminated in the impugned adjudication order dated 07.08.2013 passed by the Ld. Special Director of Enforcement levying a cumulative penalty of Rs. 54 Cr.

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20. A Writ Petition (No. 2489 of 2013) was filed before the Hon‟ble Bombay High Court by the Indian persons challenging the return of compounding application and the impugned order. The Hon‟ble Bombay High Court passed an Order dated 26.09.2013 allowing application for post facto approval in terms of Cir. No. 96 dated 28.03.2012. The Indian persons filed application for post facto approval and post facto approval for financial commitment without equity contribution was granted for the following actions: -

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a. Remit funds to RLL towards equity;

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b. Submit evidence of investment and disinvestment by RLL in CCDs;

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c. Submit evidence of repayment of loan by RLL;

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d. Discharge of corporate guarantee

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21. The RBI allotted UIN on 29.01.2014. Subsequently, the RBI also granted its No-objection to strike off the name of RLL on 12.02.2014. It is contended that despite the aforesaid developments, the RBI insisted on proceeding with compounding application though the same had become infructuous in view of the Bombay HC Order dated 10.04.2014 allowing the RBI to proceed keeping parties‟ rights intact. The Compounding Authority issued an Order dated 11.04.2014, which was challenged by the appellants in WP No. 1242 of2014.

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22. Since compounded amounts were not paid by Indian persons, RBI revoked post facto approval and permission to strike off RLL on 03.04.2014. The Indian persons responded on 09.07.2014 to state that RLL‟s name had already been struck off and that position could not be reversed.

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23. On the above facts, it is firstly contended by the appellants that the impugned order failed to consider that Regulation 2(e) read with Regulation 6(4) of FEMA 120/2004 provides three distinct modes of investment, i.e., contribution to capital OR subscription to Memorandum of Association OR existing share purchase. The relevant rule reads as below:

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“2. Definitions

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e) “Direct investment outside India” means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange, but does not include portfolio investment.”

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24. It is submitted that in the instant case, the appellants adopted the third accepted mode of investment, namely purchase of existing shares of a foreign entity, although on "deferred payment basis". It is contended that the paragraph 5.11 of the impugned Order ignores this fact when it states that any investment by an Indian party is permissible under the Automatic Route only in cases where the Indian entity has made investment by way of contribution to the capital or subscription to the Memorandum of Association. No reference is made to the third mode of direct investment outside India, namely, by purchase of existing shares of a foreign entity. Also, the impugned Order fails to notice that the Act and/or the Regulations and/or the Circulars issued thereunder, do not prohibit purchase of shares on deferred payment basis. Furthermore, the FPA-FE-40-53/MUM/2014 Page 12 of 18

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respondents failed to notice that since the Overseas Direct Investment undertaken by the appellant was permitted under the automatic route, no specific permission was required to be obtained from RBI. The appellants did inform the RBI about their investment through the authorized dealer on 28.12.2007. The respondent, while taking note of this fact in paragraph 5.9 of the impugned Order, has chosen to completely ignore the same.

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25. It is also contended that the respondent has incorrectly interpreted the word "contribution" as contained in Regulation 2(e) read with Regulation 6(4) to mean immediate payment or prior payment, which is a stretched interpretation of the term "contribution" and amounts to adding words to the Regulation, which is impermissible. In any event, the respondent ought to have considered the provisions of Regulation 2(e) and 6(4) in conjunction with the provisions of the Master Circular No. 1/2007-08 dated 02.07.2007, which uses the term "participation". A harmonious reading of the aforementioned terms as used in the Regulations and the Master Circular makes it apparent that purchase of shares on "deferred payment basis" is not violative of the provisions of the Act and/or the Regulations, especially since investment is undertaken in a country that allows such payment. Further the Master Circular expressly allows provision of guarantee in a case where there is equity participation. In the instant case, the shares stood transferred to Indian persons concerned on 22.11.2007, with all its attendant rights and liabilities. It is submitted that the investments made by the appellants were shown in the Balance Sheet and the subscription amount that was to be paid when called upon by M/s RLL, Cyprus. As such, the provision of corporate guarantees by the three Indian entities was well within the law.

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26. It is also contended that the respondent failed to appreciate that the Master Circular is a tool or aid in construction and is binding on the authorities. Further, the respondent also failed to notice that though not binding, host country law is relevant since FEMA 120/2004 deals with foreign investment. Further, in this connection it is relevant to note that Cir. No. 96 dated 28.03.2012 specifically holds that proposals of Indian party for undertaking financial commitments without equity contribution in the JV/WOS may be considered by RBI under the approval route. In the instant case upon application made by the appellants, pursuant to the Hon'ble Bombay High Court order dated 26.09.2013 in W.P. No. 2489/2013, the RBI granted post facto approval for financial commitment without equity contribution. RBI also gave its no objection to striking off the name of RLL from the Register of Companies in Cyprus. The aforesaid clearly demonstrates that the provisions of the Cir No. 96 were clarificatory in nature and applied retrospectively. In any event corporate guarantee was conditional and subject to Indian laws, thus no contravention could have been alleged. Reliance is also placed on the judgment of the Apex Court in LIC v. Escorts (1986) 1 SCC 264 wherein it was held that the RBI has the authority to give ex-post facto permission and such permission does not necessarily have to be "previous" permission.

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27. Without prejudice to the aforesaid arguments, it is contended that the impugned Order goes beyond SCN, inasmuch as it holds the appellants to be in violation of Section 6(2)(ii) of FEMA120/2004, in spite of the fact that the SCN only required the appellants to show cause why action ought not to be taken against them for violation of Reg. 6(3) (a) read with 6(4) of FEMA 120/2004.

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28. It is further contended without prejudice to the aforesaid submissions that the impugned order, while holding that the credit facilities for US$ 52 million from ICICI Bank UK PLC to RLL Cyprus was not for any bona fide business activity, failed to consider that the term "bonafide business activity" is itself undefined in the Act and the Regulations made thereunder. Therefore, the common parlance test ought to be applied to define it and any activity that is not mala fide and without any deception or fraud is required to be considered as being "bonafide". In the instant case, the business activity of investment through fully convertible debentures of WSL was bonafide and without any malafide intent. Therefore, investment made in WSL was a bonafide business activity. It is further submitted that neither the SCN nor the impugned Order points out any specific instance of fraud and/or deception so as to render the activity of investment by RLL in the business of WSL as being malafide. There are just bald and unsubstantiated allegations replete with presumptions and these cannot be used as props by the respondent for sustaining his finding that the investment by RLL was not bona fide.

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29. Similarly, the findings rendered by the respondent vis-à-vis applicability of Regulation 7 of FEMA 120/200 which relates to Investment in Financial Services Sector is beyond the allegations in the SCN. In any event, the impugned order failed to appreciate that Regulation 7 of FEMA 120/2004 is not applicable to the present case on hand, since it qualifies that an Indian Entity engaged in financial services sector in India may make investment in an entity outside India subject to certain conditions mentioned therein. On the face of it, the Indian persons concerned in the present case are not engaged in FPA-FE-40-53/MUM/2014 Page 15 of 18

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„financial services sector‟ and thus the very application of Regulation 7 in this case is incorrect.

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30. Further, and without prejudice to the contentions above, it is also submitted that the Indian persons have received post facto approval as well as direction, upon an application by the appellant, from RBI to strike off the name of RLL from the Register of companies in Cyprus and also disinvestment therein. The appellants have duly carried out the directions of RBI as advised.

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31. In light of the above submissions, the appellants have strongly contended that the impugned order deserves to be set aside and remanded back for de novo adjudication.

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Arguments on Behalf of the Respondents

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31. The learned counsel appearing for the respondent Directorate did not make detailed submissions on the merits of the case but conveyed that in the facts and circumstances of the present set of cases, the respondents are also agreeable to have the matter freshly adjudicated.

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Analysis and Findings

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32. I have given careful consideration to the facts on record and the submissions from both sides. I find that the appellants have raised several pertinent issues during the course of their arguments. It is firstly contended that the learned adjudicating authority has not at all considered the third mode of „Direct investment outside India‟ as defined under Regulation 2(e) of FEMA 120/2004, namely, investment by way of purchase of existing shares of a foreign entity.

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33. Secondly, it has been submitted on behalf of the appellants that in view of the fact that the above-mentioned mode of investment was a valid mode under the Regulation, no specific permission from the RBI was necessitated as the investment was covered under automatic route. Furthermore, from the copy of Register of Members and other documents placed on record by the appellants, it appears that transfer of shares of RLL, Cyprus from M/s CCY Services Ltd. to the three Indian entities and one individual who are appellants herein did in fact take place, even though the shares remained unpaid for. It is the submission of the appellants that the Indian entities had validly subscribed to the equity capital of the JV, RLL Cyprus even though it was on deferred paymentbasis. It is contended that neither the host country laws nor even the laws in India prohibit subscription to shares on deferred-payment basis. It has also been submitted that the term "bona fide business activity" not having been defined either under the FEMA, 1999 or the relevant Regulations framed thereunder, it could not be said that credit facilities amounting to USD 52 million from ICICI Bank UK PLC to RLL Cyprus was not for any „bona fide business activity‟, especially in view of the fact that the very purpose of setting up the JV, RLL Cyprus was to explore global opportunities in steel and textile sectors and M/s Welspun Power & Steel Ltd. was an established company with a presence in the steel sector both in India and abroad.

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34. I find that the impugned order does not throw clear light on the above aspects which were relevant to arriving at a reasoned decision as regards contravention, if any, of FEMA, 1999 and the relevant Regulations framed thereunder and the culpability of the appellants herein.

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ORDER

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35. In light of the findings and observations as above, and having considered the submissions from both sides, I am of the view that in the interest of justice the matters deserve to be remanded back for fresh adjudication. Accordingly, the impugned order is hereby set aside and the matters are remanded back to the learned adjudicating authority for fresh adjudication and passing of a reasoned order after affording the appellants reasonable opportunity of being heard. It is also made clear that if the option of compounding is still available under law to the appellants herein, this order shall not come in the way of the said option being exercised.

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36. With the above observations and directions, these appeals are hereby disposed of, along with pending applications, if any.

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37. No order as to costs.

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(V. Anandarajan) Member

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New Delhi 10th September, 2024

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‘KN’

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FPA-FE-40-53/MUM/2014