Introduction to Investigation & Adjudication under FEMA

A. INTRODUCTION

1. Background

1.1. Foreign Exchange Control was first introduced in September, 1939 under the Defence of India Rules. Subsequently, in 1947, Foreign Exchange Regulation Act was introduced to bring Foreign Exchange Control under a statutory framework and to replace the Foreign Exchange Control introduced under Defence of India Rules. This was replaced by Foreign Exchange Regulation Act, 1973 (“FERA”).

1.2. FERA was reviewed in 1993 and several amendments were enacted as part of the on-going process of economic liberalization. In view of the same, the Central Government decided to review FERA in the light of subsequent developments and experiences in relation to foreign trade and investment. It is pertinent to mention that post 1993, significant developments had taken place, such as, substantial increase in foreign exchange reserves, growth in foreign trade, rationalisation of tariffs, current account convertibility, liberalisation of Indian investments abroad, increased access to external commercial borrowings by Indian corporates and participation of foreign institutional investors in Indian stock markets. Taking into consideration the above facts, a bill to repeal and replace FERA was introduced in Lok Sabha on August 4, 1998.  Finally, FERA was replaced by Foreign Exchange Management Act, 1999 (“FEMA” or “Act”) which came into effect from June 1, 2000.

2. Difference between FEMA and FERA

2.1. The objective of FERA as stated in the preamble was to “consolidate and amend the law regulating certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency, for the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development of the country.”[1] The whole objective of the FERA was amended by introduction of FEMA, whose objective is of “facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.”[2] This change subsequently resulted in liberalization of the Foreign Exchange Control regime. While FERA dealt with all kinds of transactions related to foreign exchange, FEMA was limited to only those transactions that were mentioned under the Act. For the same purpose, current and capital account transactions were introduced in FEMA. On the same lines, presumption of negative intent, i.e. mens rea[3] and joining hands in committing the offence, i.e. abatement existed in FERA[4], while the same have been excluded from FEMA. In terms of penalty and punishment as well, FERA provided for penalty upto five times the amount involved in contravention[5] and any offence under FERA was a criminal offence punishable with imprisonment.[6] However, by introduction of FEMA, the penalty was reduced to three times the amount involved in contravention[7] and only provided for civil imprisonment only when the penalty is not paid.[8] Under FERA, no express provision provided the right to the accused to take legal assistance. However, under FEMA, the accused has the right to obtain assistance from a legal practitioner or a chartered accountant.[9] In light of the same, it can be said that while FERA represented a stringent mindset on social and economic offences, FEMA, on the other hand removed the harshness of FERA and narrowed the scope of Foreign Exchange Control.

3. Transactions under FEMA

The following transactions are mentioned under FEMA:-

3.1. Capital Account Transactions – which alter the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.[10] Capital account transactions are dealt in Section 6 of FEMA, which states that “Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction.”

3.2. Current Account Transactions – means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing, such transaction includes, – (i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, (ii) payments due as interest on loans and as net income from investments, (iii) remittances for living expenses of parents, spouse and children residing abroad, and (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children.[11] Current account transactions are dealt in Section 5 of FEMA and state “Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction, provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed.”.

4. Regulation and Enforcement under FEMA

4.1. The RBI plays the role of the regulator for the purposes of FEMA. Section 3 provides that no person shall deal in foreign exchange save as otherwise provided in the Act, rules or regulations made thereunder, or with the general or special permission of the RBI. RBI has also been given the power to consult the Central Government and be consulted for passing rules/regulations under FEMA[12], direct any exporter to comply with any requirements[13], specify period and manner to repatriate foreign exchange[14] and set limits under FEMA.[15] The RBI has also been given the power to authorize any person to deal in foreign exchange or in foreign securities, as an authorized dealer, money changer or off-shore banking unit.[16] The RBI also acts as the regulating authority for the authorized persons as stated and has the power to issue directions to authorized persons[17] and inspect them.[18] The RBI has also been given the power to compound contraventions committed by an accused under Section 13 of the Act.[19] FEMA also grants RBI the power to make regulations to carry out the provisions of the Act and the rules made thereunder.[20]

4.2. The Central Government under FEMA has established the Directorate of Enforcement (“ED”) to hold an enquiry/investigation against any person/entity who is alleged to have committed contravention of the provisions of FEMA or rules and regulations made thereunder. [21] The ED investigates the contravention under Section 13 of the Act.[22] The ED has also been given the power to compound contraventions committed by an accused under Section 13 of the Act.[23]

4.3. The interplay between the RBI as the regulator and ED as the enforcement agency was pointed out by the Supreme Court in the case of Life Insurance Corporation v. Escorts[24] wherein the Supreme Court noted that the provisions of the FERA (now FEMA) make it clear that it is for the RBI alone to consider whether the requirements of the provisions of FERA and the various rules, directions and orders from time to time have been fulfilled and whether any permission sought should be granted under the Act. The Court stated that “…The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permission may or may not be granted under Section 29(1) of the Act.”

B. INVESTIGATION & ADJUDICATION UNDER FEMA

4.4. The procedure from initiation of investigation to adjudication, under the provisions of FEMA, can be divided into four stages:-

· Stage I – Investigation
· Stage II – Complaint
·  Stage III – Adjudication Proceedings
· Stage IV – Final Order

5. Stage I – Investigation

5.1. Section 37 of the Act provides that the ED and other officers of Enforcement, not below the rank of an Assistant Director, shall take up for investigation, the contravention referred to in Section 13. As stated above, for the purposes of investigation, ED can exercise the like powers which are conferred on income tax authorities under the Income Tax Act, 1961. Therefore, the officers of ED, not below the rank of an Assistant Director have, inter-alia, the power of:

a. discovery and inspection; enforcing the attendance of any person, including any officer of a banking company and examining him on oath; compelling the production of books of account and other documents; and issuing commissions;

b. search and seizure, and the provisions of the Code of Criminal Procedure, 1973, relating to searches and seizure shall apply, so far as may be, to searches and seizure under the Act;

c. to require the officer or authority, as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer;

d. to call for information as stated therein;

e. to enter and survey any place within the limits of his jurisdiction; to inspect books of account or other documents as he may require, to check or verify the cash, stock or other valuable article or thing which may be found therein; and to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under the Act.

5.2. The designated officer of the ED is empowered to issue summons to a person whose attendance is required to give statements for completion of investigation. However, the Madras High Court has held that the Act has deliberately chosen not to apply the concept of summons used either under the Code of Civil Procedure or under the Code of Criminal Procedure, but has chosen to apply analogous provisions found in the Income Tax Act. Therefore, while interpreting the scope and width of Section 37 of FEMA, one cannot apply the concept of summons as available to a Civil Court under the Code of Civil Procedure, only because the power of a Civil Court was conferred on the authorities.[25] The Madras High Court also rejected a writ of prohibition to stall summons issued by ED[26], by relying upon the judgment issued by Supreme Court in Standard Chartered Bank v. Directorate of Enforcement[27], which arose out of the FERA violation, wherein the Supreme Court had held that it is settled law that a writ of prohibition will be issued to prevent a tribunal or authority from proceeding further when the authority proceeds to act without or in excess of jurisdiction; proceeds to act in violation of the rules of natural justice; or proceeds to act under a law which is itself ultra vires or unconstitutional. When a show-cause notice is issued under statutory provision calling upon the person concerned to show cause, ordinarily that person must place his case before the authority concerned by showing cause and the courts should be reluctant to interfere with the notice, at this stage, unless the notice is shown to have been issued palpably without any authority of law.

5.3. During the investigation, the ED can record statements from the accused, for collecting material and gathering facts to investigate the matter further. However, when collecting materials to take further action, the officers of FEMA do not act as a Court. Therefore, even at the initial stage itself, before the Adjudicating Authorities comes to a conclusion to proceed further or not, there need be no assistance to the petitioners either by an Advocate or by a Chartered Accountant.[28]

5.4. FEMA also provides that if the Authorised Officer (the officers of the ED, not below the rank of Assistant Director)[29] has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of Section 4 of the Act, he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property aggregate value of which cannot be below value as may be prescribed by the Central Government[30].

6. Stage – II Complaint

6.1. After completion of the investigation, the investigating officer has to file a formal complaint before Adjudicating Authority (“AA”) appointed by the Central Government under Section 16 of FEMA, against the alleged defaulter(s). The complaint contains:-

·  nature of contraventions likely to have been committed;
· detailed facts and circumstances leading to such contraventions; and
· list of documents relied upon by the investigating officer/complainant.

6.2. Prior to holding an inquiry into the alleged contravention of FEMA, the AA is required to issue a notice to the alleged defaulter to show cause within the period specified in the notice (being not less than ten days from the date of service of notice) as to why an inquiry should not be held against such defaulter.[31] Such notice should also indicate the nature of alleged violation/contraventions of FEMA, including provisions of FEMA or the rules, regulations, notifications, direction or orders or any condition subject to which an authorisation is issued by the RBI, alleged to been committed.[32]

6.3. The Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (“Adjudication Rules”) provide powers to AA to hold inquiry under Rule 4. While holding an inquiry under this Rule, the AA has the power to summon and enforce attendance of any person acquainted with the facts and circumstances of the case, to give evidence or to produce any document which in the opinion of the AA may be useful for or relevant to the subject matter of the inquiry.[33]

6.4. In exercise of the powers conferred by Section 16 of FEMA the Central Government appointed the following officers of the ED, as AA, to hold an inquiry for the purpose of adjudication under Section 13 of the said Act[34]:-

· Director/Principal Special Director/Special Director – amount exceeding 25 crores.
· Additional Director – amount exceeding 10 crores but less than 25 crores.
· Joint Director – amount exceeding 5 crores but less than 10 crores.
· Deputy Director – amount exceeding 2 crores but less than 5 crores.
· Assistant Director – amount up to 2 crores.

6.5. It is also provided that if any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding the threshold prescribed, the AA, after recording the reasons in writing, recommend the initiation of prosecution and if the ED is satisfied, it may, after recording the reasons in writing, may direct prosecution by filing a Criminal Complaint against the guilty person by an officer not below the rank of Assistant Director.[35]

7. Stage – III Adjudication Proceedings

7.1. If the AA is of the opinion that an inquiry should be held, it shall issue a notice fixing a date for the appearance of the accused either personally or through his legal practitioner or a chartered accountant duly authorised by him.[36] The AA can allow the accused to produce such documents or evidence as it may consider relevant to the inquiry. However, the AA is not bound to observe the provisions of the Indian Evidence Act, 1872.[37]

7.2. It is pertinent to note that the Supreme Court has held that under the Code of Criminal Procedure, 1973 (“CrPC”) the right of the accused to receive the documents/statements submitted before the Court is absolute and it must be adhered to by the prosecution and the Court must ensure the same. The expression ‘due process of law’ shall deem to include fairness in trial. The concept of fair disclosure would take in its ambit furnishing of a document which the prosecution relies upon whether filed in Court or not.[38] It was also held that one of the established facets of a just, fair and transparent investigation is the right of an accused to ask for all such documents that he may be entitled to, under the scheme contemplated by the CrPC.[39] The Supreme Court, on the question whether the AA, even at the preliminary stage, is required to furnish copies of all the documents in his possession to a noticee even for the purposes of forming an opinion as to whether any inquiry at all is required to be held, decided that even the principles of natural justice do not require supply of documents upon which no reliance has been placed by the Authority to set the law into motion. Supply of relied on documents based on which the law has been set into motion would meet the requirements of principles of natural justice.[40] Further, the accused also has a right to cross examine the witness; however, the same may not be used to delay the proceedings.[41]

7.3. The Court has clarified in Shashank Vyankatesh Manohar v. Union of India,[42] that after issuing show cause notice and receiving objections to the notice from the noticee, the AA is required to apply his mind to the objections by recording his reasons for forming an opinion on the file. This exercise need not be preceded by personal hearing and the order to be passed on the objections is not required to be detailed order, but it must disclose some link with the objections raised by the noticee and the opinion formed by the AA. The Court further clarified that recording of the opinion of the AA would be given to the noticee when the proceedings are dropped in the form of an order. However, in cases where the opinion is formed to proceed further with the show cause notice, then a notice for personal hearing is required to be given to the party in terms of Rule 4 of the Adjudication Rules. If on receipt of the notice for personal hearing, the recorded reasons are sought for by the noticee, the same should be provided. Further, this recording of reasons is not an appealable order but it would give the noticee a chance during adjudication proceedings to meet the reasons which led the AA to form an opinion that he must proceed further with the inquiry against noticee.[43]

7.4. If the alleged defaulter fails, neglects or refuses to appear before the AA, the latter may proceed with the adjudication proceedings in the absence of such person after recording the reasons for doing so.[44] Further, pending the conclusion of the inquiry, the AA may order the defaulter to be detained or release him on his furnishing the security to the satisfaction of the AA for his appearance as and when required.[45]

7.5. Further, the Act provides that the AA should dispose of the complaint as expeditiously as possible and endeavour shall be made to do the same within one year from the date of receipt of the complaint and, in the event, the complaint cannot be disposed of within the said period, the AA has to record such reasons in writing periodically, for not disposing of the complaint within the said period[46].

8. Stage –IV Final Order

8.1. If upon consideration, the AA is satisfied that the accused has committed the contravention, he may, by a reasoned order in writing, impose such penalty as he thinks fit, in accordance with the provisions of Section 13 of FEMA[47] specifying the provisions of the Act or of the rules, regulations, notifications, direction or orders or any condition subject to which an authorisation is issued by the RBI in respect of which contravention has taken place[48]. The penalties for contraventions, as provided under FEMA are[49]:-

a. thrice the sum involved in such contravention (where such amount is quantifiable); or
b. up to two lakh rupees where the amount is not quantifiable; and
c. in case of a continuing contravention, a further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

8.2. Section 42(1) of FEMA provides that where a contravention of any of the provisions of the Act or of any rule, direction or order made thereunder is committed by a company, every person who, at the time of commission of such offence, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

8.3. It should be noted that if any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding the threshold prescribed under the proviso to sub-section (1) of Section 37-A, he shall be liable to a penalty up to three times the sum involved in such contravention and confiscation of the value equivalent, situated in India, of the Foreign exchange, foreign security or immovable property, and in addition to the penalty imposed, punishable with imprisonment for a term which may extend to five years and with fine.[50] In addition to the above penalties, the AA can also direct[51] –

a. confiscation of any currency, security or any other money or property in respect of which the contravention has taken place; and

b. direct that the foreign exchange holdings, if any, of the Party or any part thereof are remitted back into India or retained outside India in accordance with the directions.

9. Enforcement of Final Order

9.1. If a person fails to make full payment of penalty imposed on him by the AA within a period of 90 days from the date of service of the notice of payment on him, he shall be liable to civil imprisonment.[52] However, no order for arrest and detention in a civil prison of the defaulter will be made by the AA, without providing an opportunity to the defaulter to show cause why he should not be committed to the civil prison and unless the AA is satisfied that[53] –

a. The defaulter, with the object of obstructing recovery of the penalty, has after the issue of notice, dishonestly transferred, concealed or removed any part of his property, or

b. The defaulter has, or has had the means to pay the arrears and refuses or neglects or has refused or neglected to pay the same.

9.2. A warrant for the arrest of the defaulter may be issued by the AA if the AA is satisfied that the defaulter is likely to abscond or leave the local limits of the jurisdiction of the AA with the object or effect of delaying the execution of the certificate.[54] If the defaulter does not appear pursuant to a notice issued and served, as stated above, the Adjudicating Authority may issue a warrant for the arrest of the defaulter.[55]

9.3. Every person arrested in pursuance of a warrant of arrest shall be brought before the AA issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest (exclusive of the time required for the journey). However, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him.[56]

9.4. The AA may make an order for the detention of the defaulter in the civil prison but FEMA provides that in order to give a defaulter an opportunity of satisfying the arrears, the AA may, before making the order of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on his furnishing security to the satisfaction of the AA for his appearance at the expiration of the specified period if the arrears are not satisfied.[57] However, it should be noted that every person detained in the civil prison in execution of the certificate may be so detained,-

a. where the certificate is for a demand of an amount exceeding rupees one crore, up to three years, and

b. in any other case, up to six months.[58]

9.5. It should also be noted that a defaulter released from detention shall not, merely by reason of his release, be discharged from his liability for the arrears, but he shall not be liable to be arrested under the certificate in execution of which he was detained in the civil prison.[59]

C. APPEAL

10. Appeal from Final Order

10.1. Under the provisions of FEMA, any party aggrieved by the Final Order issued by the AA, may prefer an appeal within a period of 45 days of receiving a copy of the Final Order passed by the AA[60] or the Special Director (Appeals)[61].  An appeal from the Final Order lies before the: –

a. Special Director (Appeals), in the event, the Final Order has passed by the AA, who is of the rank of Assistant Director of Enforcement or the Deputy Director of Enforcement;[62] or

b. Appellate Tribunal, in other cases, where the order has been passed by the AA, who is an officer senior to the Assistant Director of Enforcement or the Deputy Director of Enforcement.[63]

10.2. An appeal from an order passed by the Special Director (Appeal) also lies with the Appellate Tribunal, which is headed by a Chairperson, who is or has been or is qualified to be a Judge of a High Court.[64]

10.3. It should be noted that the Appellate Tribunal and/or Special Director (Appeals) may entertain an appeal after the expiry of the said period of forty-five days, if it is satisfied that there was sufficient cause for not filing it within that period.[65]

10.4. The Appellate Tribunal and the Special Director (Appeals) are not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice.[66] While filing the appeal against the Final Order of the AA or the Special Director (Appeals), levying any penalty, the appellant shall deposit the amount of such penalty with such authority as may be notified by the Central Government. However, where the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.[67] Such dispensation can be allowed in case appellant establishes (a) prima facie case and (b) irreparable harm and (c) balance of convenience, which would also include undue hardship.[68] It may be noted that the Appellate Tribunal shall dispose off the appeal as expeditiously as possible and shall endeavour to dispose of the appeal within a period of one hundred and eighty (180) days from the date of receipt of the appeal. In the event, the Appellate Tribunal fails to dispose off the appeal within a period of one hundred and eighty (180) days then Appellate Tribunal shall record its reasons in writing for the same.[69]

11. Appeal from Order of the Appellate Tribunal

11.1. A person aggrieved by an order of the Appellate Tribunal may file an appeal to the High Court within 60 days from the date of receipt of the order passed by the Appellate Tribunal on any question of law arising out of such an order. The High Court may however entertain an appeal after the lapse of 60 days (for period not exceeding another 60 days), on being satisfied that there was sufficient cause for not filing the same within that period.[70]

D. COMPOUNDING OF OFFENCES

12.1. As stated above, under Section 15 of FEMA, the RBI and ED is empowered to compound any contravention, under Section 13 of the FEMA, on an application made by the person committing such contravention. Further, the same should be compounded within a period of one hundred and eighty (180) days from the date of receipt of application by the ED or such other officers of the ED and officers of RBI as may be authorised by the Central Government.

12.2. The Central Government has issued the Foreign Exchange (Compounding Proceedings) Rules, 2000 (“Compounding Rules”) for compounding of contraventions under FEMA. If any person contravenes any provisions of the FEMA except clause (a) of Section 3, compounding can be done –

a. in case where the sum involved in such contravention is ten lakhs rupees or below, by the Assistant General Manager of RBI;

b. in case where the sum involved in such contravention is more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy General Manager of RBI;

c. in case where the sum involved in the contravention is rupees forty lakhs or more but less than rupees hundred lakhs (sic) by the General Manager of RBI;

d. in case the sum involved in such contravention is rupees one hundred lakhs or more, by the Chief General Manager of the RBI.[71]

12.3. For any contravention under Section 3(a) of the FEMA, the compounding can be done by, –

a. in case where the sum involved in such contravention is five lakhs rupees or below, by the Deputy Director of the ED;

b. in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of ED;

c. in case where the sum involved in the contravention is rupees ten lakhs or more but less than fifty lakhs rupees by the Special Director of ED;

d. in case where the sum involved in the contravention is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of ED;

e. in case the sum involved in such contravention is one crore rupees or more, by the Director of ED with Special Director ED.[72]

12.4. It should however be noted that a contravention cannot be compounded if committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under these rules.[73]

12.5. Rule 8 of the Compounding Rules gives the power to the Compounding Authority to call for any information, record or any other documents relevant to the compounding proceedings. The Compounding Authority has to give an opportunity of being heard to all the concerned parties and decide the compounding application not later than one hundred and eighty (180) days from the date of application.[74] However a recent amendment[75] to the Compounding Rules provide that under Rule 4, if the ED is of the view that the said proceeding relates to a serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, the Compounding Authority shall not proceed with the matter and shall remit the case to the appropriate AA for adjudicating contravention under Section 13. In case a person fails to pay the sum compounded within the time specified in that rule, he shall be deemed to have never made an application for compounding of the contravention.[76] It should however be noted that no contravention shall be compounded if an appeal has been filed under Section 17 or Section 19 of the Act.[77]

E.  SOME ISSUES UNDER FEMA

13.1. Compounding under FEMA – As stated above, FEMA allows for compounding of offences, but the same is not a ‘guilt free’ compounding, and, being discretionary, often discourages  parties from opting for compounding under FEMA.

13.2. No Strict Timelines – Since FEMA does not stipulate strict timelines for the AA to dispose of the complaints under Section 16(6) and for the Appellate Authority to dispose of appeals under Section 19 (5) and only mandates that an ‘endeavor’ be made to dispose of the same under prescribed timelines, the process of adjudication and appeal takes too long to provide efficacious justice. The same is further accentuated since the Appellate Tribunal under FEMA is also the appellate authority under other acts (including Prevention of Money Laundering Act, 2002, Smugglers and Foreign Exchange Manipulators (forfeiture of property) Act, 1976 and Narcotic Drugs & Psychotropic Substances Act, 1985, as well as orders imposing fine passed by the Director-Financial Intelligence Unit India,) which leads to further burdening the Appellate Tribunal. In addition to this, it may be noted that as there is only one national tribunal, i.e. the Appellate Tribunal, an appeal usually remains pending before the Appellate Tribunal for longer periods of time and generally takes about two to four years to get decided. Further, as the vacancies of the position of judicial and/or technical members are not filled in timely manner, the same also adds to the pendency of appeals before the Appellate Tribunal. Consequently, the development of legal jurisprudence on this topic is meagre despite its importance and the number of matters that are taken up for enquiry or investigation.

13.3. Penalty on Individuals – It has also been seen in a number of cases, that the AA has levied disproportionate fine on directors or persons who were in charge of, or responsible to, the company for the conduct of its business, at the time of commission of such contraventions, which are merely technical and venial in nature. This is despite the fact that such officer of the company, personally, might not have gained any benefit out of the contravention.

F. CONCLUSION

14.1. From the above discussion, it can be seen that the object of FEMA has changed from a rigid and stringent FERA, the purpose of which was ‘regulation’, to the present Act that ‘facilitates’ foreign exchange. However, keeping up with global trends and the present endeavor of the Government to promote ease of business, the FEMA needs a thorough revisit to make the Act more pragmatic particularly when the authorities under FEMA, like ED also exercise powers, inter alia, under Prevention of Money Laundering Act, 2002, Fugitive Economic Offenders Act, 2018 and Conservation of Foreign Conversion and Prevention of Smuggling Activities Act, 1974[78], as a result of which the lines of where the offence falls and how it should be treated blurs sometimes. FEMA should allow ‘guilt free’ compounding and bring it in consonance with the jurisprudence of compounding under Indian Law. There is also a need for devising a mechanism for imposition of adequate monetary penalty on the directors and officers of the company for contravention under FEMA. More importantly, the need of the hour is to prescribe stringent timelines under FEMA to dispose of the complaint by the AA and to implement measures to expedite the disposal of appeals. While there may be various reasons for the build-up of pendency, such as delay in appointment of members, need for better infrastructure for holding court, budgetary allocation, etc., the same may only be a part of the problem. An equally important part of the pendency issue is to identify the cause of pendency and to come up with targeted solutions based on tangible, measurable and actionable data. A disclosure of matters, pending for adjudication along with period of pendency and stage of such matter, along with details of matters disposed, including a break up into matters compounded by the RBI or ED will also add to much needed transparency.

Authors:

Priyank Ladoia, Senior Associate
Tanmay Sharma, Associate

Footnotes:

[1] Preamble, Foreign Exchange Regulation Act, 1973
[2] Preamble, Foreign Exchange Management Act, 1999
[3] Section 59, Foreign Exchange Regulation Act, 1973
[4] Section 64, Foreign Exchange Regulation Act, 1973
[5] Section 50, Foreign Exchange Regulation Act, 1973
[6] Section 56, Foreign Exchange Regulation Act, 1973
[7] Section 13, Foreign Exchange Management Act, 1999
[8] Section 14, Foreign Exchange Management Act, 1999
[9] Section 32, Foreign Exchange Management Act, 1999
[10] Section 2 (e), Foreign Exchange Management Act, 1999
[11] Section 2 (j), Foreign Exchange Management Act, 1999
[12] Section 5 & 6, Foreign Exchange Management Act, 1999
[13] Section 7, Foreign Exchange Management Act, 1999
[14] Section 8, Foreign Exchange Management Act, 1999
[15] Section 9, Foreign Exchange Management Act, 1999
[16] Section 10, Foreign Exchange Management Act, 1999
[17] Section 11, Foreign Exchange Management Act, 1999
[18] Section 12, Foreign Exchange Management Act, 1999
[19] Section 15, Foreign Exchange Management Act, 1999
[20] Section 47, Foreign Exchange Management Act, 1999
[21] Section 36, Foreign Exchange Management Act, 1999
[22] Section 37 (1), Foreign Exchange Management Act, 1999
[23] Section 15, Foreign Exchange Management Act, 1999
[24] Life Insurance Corporation v. Escorts, (1986)1 SCC 264
[25] K. A. Manshoor v. Govt. of India, 2009 SCC OnLine Mad 1839
[26] Supra
[27] Standard Chartered Bank v. Directorate of Enforcement, (2006) 4 SCC 278
[28] P. Giribabu vs. Deputy Director of Enforcement, 2010 SCC Online Mad 2858
[29] Ministry of Finance (Dept. of Revenue), Notification No. G.S.R. 702(E), dated September 16, 2015, published in the Gazette of India, Extra., Part II, Section 3(i), dated 16th September, 2015, p. 2, No. 564 [F. No. A-12011/02/2014 – Ad.ED]
[30] Section 37-A, Foreign Exchange Management Act, 1999
[31] Rule 4 (1), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[32] Rule 4 (2) and (4), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[33] Rule 4 (6), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[34] Ministry of Finance (Dept. of Revenue), Notification No. SO 4990(E) [F.NO.K-11022/54/2018/AD.ED], dated September 27, 2018
[35] Section 13 (1-B), Foreign Exchange Management Act, 1999
[36] Rule 4 (3), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[37] Rule 4 (5), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[38] Sidhartha Vashisht v. State (NCT of Delhi), (2010) 6 SCC 1
[39] V. K. Sasikala v. State rep. by Superintendent of Police, (2012) 9 SCC 771
[40] Kanwar Natwar Singh v. Director of Enforcement and Ors., MANU/SC/0795/2010
[41] Lalit Kumar Modi v. Special Director, Directorate of Enforcement (Western Region), Government of India and Ors., MANU/MH/0214/2018
[42] Shashank Vyankatesh Manohar v. Union of India, 2014(1) MhLj838
[43] Supra
[44] Rule 4 (7), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[45] Section 14 (8), Foreign Exchange Management Act, 1999
[46] Section 16(6), Foreign Exchange Management Act, 1999
[47] Rule 4 (8), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[48] Rule 4 (9), Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000
[49] Section 13 (1), Foreign Exchange Management Act, 1999
[50] Section 13 (1-A) and (1-C), Foreign Exchange Management Act, 1999
[51] Section 13 (2), Foreign Exchange Management Act, 1999
[52] Section 14 (1), Foreign Exchange Management Act, 1999
[53] Section 14 (2), Foreign Exchange Management Act, 1999
[54] Section 14 (3), Foreign Exchange Management Act, 1999
[55] Section 14 (4), Foreign Exchange Management Act, 1999
[56] Section 14 (6), Foreign Exchange Management Act, 1999
[57] Section 14 (9), Foreign Exchange Management Act, 1999
[58] Section 14 (11), Foreign Exchange Management Act, 1999
[59] Section 14 (12), Foreign Exchange Management Act, 1999
[60] Section 17 (3), Foreign Exchange Management Act, 1999
[61] Section 19 (2), Foreign Exchange Management Act, 1999
[62] Section 17 (2), Foreign Exchange Management Act, 1999
[63] Section 19 (1), Foreign Exchange Management Act, 1999
[64] Supra
[65] Section 17 (3) and Section 19(2) of Foreign Exchange Management Act, 1999;
[66] Section 28 (1), Foreign Exchange Management Act, 1999
[67] Section 19 (1), Foreign Exchange Management Act, 1999
[68] Google India Pvt. Ltd. and Ors. vs. The Special Director Directorate of Enforcement, Chennai MANU/AE/0002/2019
[69] Section 19 (5), Foreign Exchange Management Act, 1999
[70] Section 35, Foreign Exchange Management Act, 1999
[71] Rule 4 (1), Foreign Exchange (Compounding Proceedings) Rules, 2000
[72] Rule 5, Foreign Exchange (Compounding Proceedings) Rules, 2000
[73] Rule 4 (2) and 5 (2), Foreign Exchange (Compounding Proceedings) Rules, 2000
[74] Rule 8 (2), Foreign Exchange (Compounding Proceedings) Rules, 2000
[75] G.S.R. 151(E), dated 20-2-2017 (w.e.f. 20-2-2017)
[76] Rule 10, Foreign Exchange (Compounding Proceedings) Rules, 2000
[77] Rule 11, Foreign Exchange (Compounding Proceedings) Rules, 2000
[78] https://enforcementdirectorate.gov.in/functions.html?p1=1206271595849107078

Date: August 24, 2020