No Penalty Beyond Minimum Penalty Where FC-GPR is not Taken on Record Due to Non-Filing of Clarification

Held by Hon’ble SAFEMA Tribunal 

In the Matter of Union of India, Through DLA, ED, Hyderabad Vs. M/s. Peritus Corporation Pvt. Ltd.

(FPA-FE-133/HYD/2020)

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The Respondent has received inward remittance of INR 5 Crores during the period of 13.01.2014 to 17.01.2014. The Respondent allotted the shares against the foreign remittance within the stipulated time and filed the FC-GPR form with the RBI within 30 days of the share allotment through the AD Bank. However, the RBI did not take such FC-GPR on record due to certain pending clarifications. The Ld. AA held that the Respondent has contravened Section 6(3)(b) of the FEMA Act read with Para 9(1)(B) of Schedule I to the Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) Regulations, 2000. Therefore, the Ld. AA imposed a total penalty of INR 2,00,000/- on the Respondent and the person who was responsible for conducting the business and other activities of the company.

The Appellant contended that the Ld. AA has imposed a very low penalty of INR 2 Lakhs only, which is not commensurate with the contravention committed by the Respondent. The AA has ignored the provisions of Section 13(1) of the FEMA Act, which provides for the imposition of a penalty up to 3 times the sum involved in the contraventions. The discretion to impose a penalty for breach of any law, of course, lies with the judicial/quasi-judicial authorities; however, said discretion is not unfettered, and the same has to be used reasonably and justifiably, which has not been done in this case.  Therefore, the Appellant has prayed for a suitable enhancement of the penalty in terms of Section 13 (1) of FEMA,1999.

Hon’ble Tribunal Held that the respondent has filed the mandatory form FC-GPR within the stipulated period. Hence, the intention of the Respondents is clear, and they wish to comply with the provisions of the RBI concerning FDI.  Also, the Respondent was not informed of the said breach as the letter was only sent to the AD Bank, i.e., SBI, Saifabad Branch. Therefore, the Respondents have only committed a technical error. The Respondents accepted that they committed the error and, with the same, deposited the penalty amount imposed on them through the impugned order. Therefore, Ld. AA was, in fact, just and fair and judicious. There is no ground to enhance the penalty amount over and above the amount that has already been imposed.

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Read Also: The SAFEMA Appellate Tribunal Reduced Penalty from 5 Crores to 50 Lacs for contravention of Section 10(5) of the FEMA Act

1. Brief Facts of the case:

• M/s Peritus Corporation Private Limited (“The Respondent”) received foreign inward remittance of INR 5.00 Crores during the period from 13.01.2014 to 17.01.2014.

• The Respondent allotted the shares against such inward remittance within the stipulated time and also reported the receipts to the RBI within the stipulated time.

• After allotment of shares to the foreign investor, the Respondent was required to file Form FC-GPR to the RBI within 30 days of allotment of shares through their Authorized Dealer (AD) bank. 

• In the given case, the Company filed FC-GPR with their AD bank for onward submission to the RBI within 30 days of allotment of shares. 

• However, such a form was not taken on record by the RBI due to certain pending clarifications.

• The Ld. Assessing Officer (“AA”) found that the Respondent had contravened the provisions of Section 6(3)(b) of FEMA,1999 r/w Para 9(1)(B) of Schedule I to the Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) Regulations, 2000.

• The Company has failed to file Form FC-GPR with the RBI within the specified time with full particulars, and it is a technical contravention. 

• Also, the person who was responsible for conducting the business and other activities of the company was held guilty of FEMA provisions.

• Accordingly, the Ld. AA imposed the penalty of INR 1,00,000 on each of the respondents through order No. JD/AG/01/HYZO/2020 dated 31.07.2020 (Impugned Order).

• The Present Appeal is filed by the Union of India, through DLA, ED, Hyderabad, for an increase in the amount of penalty imposed on the Respondents.

2. Contention of the Appellant

The Appellant contended that:

• The Ld. AA has imposed the minimal penalty of INR 2 lakhs (Rs. 1 lakh on each Respondent), which is not in line with the grave contravention committed by the Respondents.

• The Ld. AA held that Respondent No. 1 had contravened Section 6(3)(b) of FEMA read with Para 9(1)(B) of Schedule-l to FEMA Regulations by not filing the mandatory Form FC-GPR with RBI within the specified time with full particulars involving an amount of Rs. 5 Crores.

• However, Ld. AA imposed a very low penalty totaling Rs. 2 lakhs, which is not commensurate with the contravention committed by the respondents without assigning any proper reasons.

• The AA has ignored the provisions of Section 13(1) of the FEMA Act, which provides for the imposition of a penalty up to 3 times the sum involved in the contraventions.

• The discretion to impose a penalty for breach of any law, of course, lies with the judicial/quasi-judicial authorities; however, said discretion is not unfettered, and the same has to be used reasonably and justifiably which has not been done in this case. 

• The Appellant has prayed for a suitable enhancement of the penalty in terms of Section 13 (1) of FEMA,1999.

3. Contention of the Respondent

The Respondent contended that:

• The imposition of a penalty on them itself is not warranted, as there was no violation by the Respondent since the company had filed the returns within 30 days from the date of issue of shares.

• The Respondent filed FC-GPR reports against the entire investment on 11th March, 2024 itself, and the said returns were forwarded by AD bank to RBI along with all original documents.

• The RBI sought clarification vide letter dated. 13.08.2014 addressed to AD Bank alone.

• Further, neither the regulations provide for compliance with defects/ clarifications within a stipulated period, amounting to a substantial breach, nor do the technical issue of non-submission of clarification/ revised documents have any ramifications on the economy of the country as alleged by the Appellant.

• Even if the defects were rectified and revised documents are filed on a subsequent date, the initial date of filing of FC-GPR shall only be considered as the date of reporting as per the settled legal position.

• In Northern Railway Vs. Pioneer Publicity Corporation Pvt. Ltd. MANU/SC/1705/2016 : (2017) 11 SCC 234, Hon'ble Supreme Court held that refilling of the Application after curing the defects in the Application does not amount to fresh filing of the Application for counting limitation.

• Ld. AA has held that there is only a technical breach and in the absence of any allegation of malafidencia or the impugned order is passed on extraneous considerations or in violation of any legal provisions, the imposition of penalty cannot be questioned.

• Further, various judicial forums have held that even if a minimum penalty is prescribed, the authority competent to impose a penalty will be justified in refusing to impose a penalty when there is a technical or venial breach. 

• The amount of FDI shall not be considered for determining the penalty since the contravention is not in the nature of restricted or prohibited activity or non-compliance under FEMA. 

• It is only in the nature of non-submission of clarification/revised documents of already reported compliance that too without bringing the communication of RBI to the AD Bank to the knowledge of Respondent no. 2. 

• Even The Respondents came to know about the clarification sought by the RBI at the time of adjudication proceedings. Therefore, the Respondents have, inter alia, prayed for the dismissal of the appeal.

4. Analysis and Findings by Hon’ble Tribunal

The Hon’ble Tribunal made the following findings and submissions:

• The Appellant argued that the Respondents failed to submit the mandatory form FC-GPR. Whereas the Respondents submitted the form, the RBI had not accepted the same on account of the defects in the filing of the form, which had not been corrected by the Respondents. 

• The Respondent also contended that communication of such error was only informed to the AD Bank and that the Respondents were not aware of this defect.

• When the respondents asked for the said letter, the Bank was unable to produce it as the same was under scrutiny during the proceeding before the Ld. AA.

• The respondents have relied on the judgments passed by this Appellate Tribunal in different cases including the case of Union of India vs. OSR Infra Pvt. Ltd., wherein the Hon’ble Court has held that where the FC-GPRs were filed beyond stipulated date, it is held that when the order of adjudicating authority reflects judiciousness in not having imposed penalty in proportion to the amount of FDI received, particularly so when the contravention is only technical and given contraventions not being substantive, the adjudicating authority order cannot be interfered with.

• The imposition of minimum penalty is concerned, the Ld. AA has discretion to impose the minimum penalty as there is no bar in the Act to impose such a penalty. This issue has already been decided in the landmark judgment of the Hon’ble Supreme Court in the matter of Hindustan Steel Ltd. v. State of Orissa 1978 (2) E.L.T. (J 159) (S.C.). 

• On perusal of the impugned order, we find that the same reflects fairness, judiciousness on the part of the Ld. AA, particularly when there is a technical breach of any provisions of FEMA, 1999.

• In the light of the above, I agree with the view taken by the Ld. AA and the arguments produced by the Respondents. The respondent has filed the mandatory form FC-GPR within the stipulated time. Hence, the intention of the Respondents is clear, and they wish to comply with the provisions of the RBI concerning FDI. 

• It is also clear from the material placed on record that they were not informed of the said breach, as the letter was only sent to the AD Bank, i.e., SBI, Saifabad Branch. It appears that the Respondents only committed a technical error in the different surname of the Respondent No. 2.

• The Respondents accepted that they committed the error and, with the same, deposited the penalty amount imposed on them vide order dated 31.07.2020 by the Ld. AA.

• Therefore, Ld. AA was, in fact, just and fair and judicious. There is no ground to enhance the penalty amount over and above the amount that has already been imposed.