Bombay High Court
The Special Director, Direcrorate Of ... vs Fraiser Castellino on 13 December, 2023
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
2023:BHC-AS:37340-DB
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FEMA APPEAL NO. 1 OF 2020
WITH
INTERIM APPLICATION NO. 1706 OF 2020
IN
FEMA APPEAL NO. 1 OF 2020
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Jaipur IPL Cricket Pvt. Ltd.,
6th Floor, MET Building,
General A. K. Vaidya Marg,
Bandra Reclamation, Bandra (W),
Mumbai-400 050. ...Respondent
WITH
FEMA APPEAL NO. 2 OF 2020
WITH
INTERIM APPLICATION NO. 2065 OF 2020
IN
FEMA APPEAL NO. 2 OF 2020
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
Gaikwad RD
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The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Manoj Badale,
M/s. ND Investments LLP, 2nd Floor, 26-28,
Hammersmith Grove, London W6 7AW, UK. ...Respondent
WITH
FEMA APPEAL NO. 1 OF 2021
WITH
INTERIM APPLICATION NO. 2058 OF 2020
IN
FEMA APPEAL NO. 1 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Ranjit Barthakur,
Jaipur IPL Cricket Pvt. Ltd.,
6th Floor, MET Building,
General A. K. Vaidya Marg,
Bandra Reclamation, Bandra (W),
Mumbai-400 050. ...Respondent
WITH
FEMA APPEAL NO. 2 OF 2021
WITH
INTERIM APPLICATION NO. 2054 OF 2020
IN
FEMA APPEAL NO. 2 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Gaikwad RD
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Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
M/s. ND Investments LLP,
2nd Floor, 26-28, Hammersmith Grove, London
W6 7AW, UK. ...Respondent
WITH
FEMA APPEAL NO. 3 OF 2021
WITH
INTERIM APPLICATION NO. 2062 OF 2020
IN
FEMA APPEAL NO. 3 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Bishwarnath Bachun,
M/s. EM Sporting Holdings Ltd., 5th Floor,
C & R Court, 49, Labourdonnais Street,
Port Louis, Mauritius. ...Respondent
WITH
FEMA APPEAL NO. 4 OF 2021
WITH
INTERIM APPLICATION NO. 2068 OF 2020
IN
FEMA APPEAL NO. 4 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Gaikwad RD
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Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Suresh Chellaram,
Managing Director & Chief Executive,
M/s. Chellaram PLC, 26, Cameron Road, Ikoyi,
Lagos, Nigeria. ...Respondent
WITH
FEMA APPEAL NO. 5 OF 2021
WITH
INTERIM APPLICATION NO. 2069 OF 2020
IN
FEMA APPEAL NO. 5 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Mrs. Barbara Jacqueline Haldi,
M/s. EM Sporting Holdings Ltd., 5th Floor,
C & R Court, 49, Labourdonnais Street,
Port Louis, Mauritius. ...Respondent
WITH
FEMA APPEAL NO. 6 OF 2021
WITH
INTERIM APPLICATION NO. 2056 OF 2020
Gaikwad RD
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IN
FEMA APPEAL NO. 6 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Raghuram Iyer,
Jaipur IPL Cricket Pvt. Ltd., 6th Floor,
MET Building, General A. K. Vaidya Marg,
Bandra Reclamation, Bandra (W),
Mumbai-400 050. ...Respondent
WITH
FEMA APPEAL NO. 7 OF 2021
WITH
INTERIM APPLICATION NO. 2059 OF 2020
IN
FEMA APPEAL NO. 7 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
M/s. EM Sporting Holdings Ltd.,
5th Floor, C & R Court, 49,
Labourdonnais Street, Port Louis, Mauritius.
...Respondent
Gaikwad RD
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WITH
FEMA APPEAL NO. 8 OF 2021
WITH
INTERIM APPLICATION NO. 2060 OF 2020
IN
FEMA APPEAL NO. 8 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Fraiser Castellino,
Flat No. 2, Marakkesh Apartments,
St. Mark Road, Bangalore-560 001. ...Respondent
WITH
FEMA APPEAL NO. 9 OF 2021
WITH
INTERIM APPLICATION NO. 2061 OF 2020
IN
FEMA APPEAL NO. 9 OF 2021
The Special Director,
Directorate of Enforcement, (WR) Directorate of
Enforcement,
Janmabhoomi Chambers,
1st Floor, Walchand Hirachand Marg,
Fort, Ballard Estate, Mumbai.
At Present Address:
Ministry of Finance,
Department of Revenue,
Government of India through
The Assistant Director, 4th Floor,
Kaiser I Hind Building, Currimbhoy Lane,
Ballard Estate, Fort, Mumbai-400 001. ...Appellant
Versus
Ms. Samila Sivaramen,
Gaikwad RD
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M/s. EM Sporting Holdings Ltd.,
5th Floor, C & R Court, 49,
Labourdonnais Street, Port Louis, Mauritius.
...Respondent
Mr. Ashish Chavan, with Mr. Zishan Quazi, for Appellants.
Mr. Rohan P. Shah, with Mr. Roy Deep, Mr. Srisabari Rajan, Mr.
Manish Rastogi & Prajwal Tiwari, i/b Deep Roy, for Respondents.
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
RESERVED ON : 6th December 2023
PRONOUNCED ON : 13th December 2023
JUDGMENT:
(Per Dr. Neela Gokhale, J.)
1. These Appeals under Section 35 of the Foreign Exchange
Management Act, 1999 ("FEMA") are directed against order dated
11th July 2019 passed by the Appellate Tribunal for SAFEMA, FEMA,
NDPS, PMLA & PBPT Act ("the Tribunal"), modifying the order
passed by the Special Director of Enforcement to the extent of
reducing the quantum of total penalty imposed upon the Appellants
which totaled to Rs.98.35 Crores to Rs.15 Crores only. The Tribunal
has thus held that the amount of Rs.15 Crores already deposited by
Appellants pursuant to the directions of this Court dated 21 st January
2015 is reasonable and the same be treated as penalty for the
contravention of the Act as held by the Tribunal.
2. The facts emerging from the Appeals are:
(a) On receipt of information, inquiries were initiated by the
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Mumbai Zonal Office of the Directorate of Enforcement in the
functioning of the Twenty-Twenty cricket tournament popularly
known as 'the Indian Premier League' ("IPL") organized by the Board
of Control for Cricket in India ("BCCI"). BCCI was called upon to
furnish certain information on the basis on which, it was felt that
there were large scale irregularities in the conduct and functioning of
the IPL and its franchisees. A comprehensive investigation revealed
certain irregularities in the context of Respondents.
(b) The process of allotting ownership of teams for IPL commenced
by floating an Invitation to Tender ("ITT") to any person to submit a
bid to own and operate a team for participation in the IPL. The
bidders were required to choose from eight locations to operate their
teams, viz., Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad,
Mohali and Jaipur. The person being awarded ownership of a team is
known as a 'franchisee.' Each successful bidder would be allotted
only one team. Several criteria with respect to eligibility and fitness
were stipulated and laid down in the ITT. One such criteria was the
performance deposit of US$5 million equivalent to Rs. 20 Crores.
3. The present Appeals relate to the deposits from various sources
made during the bidding process by Jaipur IPL Cricket Pvt. Ltd. and
its Directors and Promoters, the Respondents herein which were held
to be in contravention of the various provisions of FEMA and the
regulations made thereunder.
Gaikwad RD
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4. One Emerging Media IPL Ltd., UK submitted a bid of US$ 67
millions (Rs.268 Crs.) for a team at Jaipur. This amount was to be
paid in ten equal installments over a period of ten years. The
franchise for Jaipur was known as 'Rajasthan Royals'. The franchise
agreement was signed by Jaipur IPL Cricket Pvt. Ltd. ("JIPL") and the
BCCI. Fraiser Castellino, the then CEO of JIPL ( Respondent in FEMA
Appeal No.8 of 2021) executed the agreement on behalf of JIPL and
one Lalit Modi, Vice President of BCCI and Chairman of IPL executed
the same on behalf of BCCI.
5. The performance deposit of Rs.20,19,87,410.23 for JIPL was
transferred from UK to the account of BCCI-IPL with HDFC Bank,
Chennai. The said amount was transferred by one Manoj Badale
(Respondent in FEMA Appeal No.2 of 2020) from UK on behalf of
Emerging Media IPL Ltd. Subsequently, the franchise agreement was
signed on 14th April 2008 and the balance deposit money, i.e.,
US$773,480.99 after the auction was paid by one EM Sporting
Holdings Ltd., Mauritius ("EMSH") (Respondent in FEMA Appeal
No.7 of 2021) to BCCI. Thus, Manoj Badale and EMSH together paid
a total amount of Rs.23,49,27.410/-. The documents furnished by
JIPL clearly showed that JIPL was a wholly owned subsidiary of
EMSH. The date of incorporation of EMSH was 5 th May 2008 and
that of JIPL was 8th March 2008. The paid-up capital of the company
at incorporation was Rs.1 Crore having 10000 shares. Ranjit
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Barthakur (Respondent in FEMA Appeal No.1 of 2021) and Fraiser
Castellino, both Directors of JIPL owned 5000 shares each. Ranjit
Barthakur sold 4990 shares to EMSH, Mauritius and Fraiser sold
5000 shares to EM Sporting Holdings, Mauritius. From the details of
the foreign investments of JIPL, it was revealed that JIPL also
received foreign investments through Axis Bank, Fort, Mumbai. The
investments totaling Rs.9,73,18,034/- were shown as Foreign Direct
Investment ("FDI") in India in equity. JIPL had filed an application
seeking approval from the Reserve Bank of India ("RBI") for issuing
shares to EMSH, Mauritius which was paid by Manoj Badale and
EMSH, Mauritius to BCCI towards performance deposit and franchise
fees. RBI refused permission and conveyed clearly that an Indian
company receiving share subscription from a person resident outside
India by mode of payment other than that indicated in paragraph 8 of
Schedule I to a notification dated 3rd May 2000 and capitalization of
pre-incorporation of expenses required prior approval of Foreign
Investment Promotion Board ("FIPB") for issue of shares to a foreign
investor. JIPL also received additional foreign investments from
Manoj Badale and one ND Investments LLP, UK Ltd. (Respondent in
FEMA Appeal No.2 of 2021). These investments of Manoj Badale and
ND Investments LLP were also shown as FDI in India in equity. Thus,
it was alleged by the Enforcement Directorate that JIPL and its
promoters (as named above) contravened the provisions of FEMA
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and accordingly, four separate show cause notices dated 13 th April
2011 were issued by the Special Director of Enforcement to JIPL and
its promoters, i.e., Respondents herein. Show cause notices were
issued to JIPL for the following contraventions:
(i) SCN 1: Issued to Jaipur IPL Cricket Pvt. Ltd. for the following
contraventions:
i. Section 6(3)(b) of FEMA read with Regulation 5(1) of Foreign
Exchange Management (Transfer or Issue of Security by a Person
Resident Outside India) Regulations, 2000 and para 8 of
Schedule 1 thereto and also read with Regulation 5 of Foreign
Exchange Management (Permissible Capital Account
Transactions) Regulations, 2000 issued under Section 6(2) of
FEMA to the extent of Rs.23,49,27,410.23.
ii. Section 6(3)(b) of FEMA read with Regulation 5(1) of Foreign
Exchange Management (Transfer or Issue of Security by a Person
Resident Outside India) Regulations, 2000 and para 8 of
Schedule 1 thereto and also read with Regulation 5 of Foreign
Exchange Management (Permissible Capital Account
Transactions) Regulations, 2000 issued under Section 6(2) of
FEMA to the extent of Rs.9,73,18,034/-.
iii. Section 6(3)(b) of FEMA read with Regulation 5(1) of Foreign
Exchange Management (Transfer or Issue of Security by a Person
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Resident Outside India) Regulations, 2000 and also read with
para 9(1)(A) of Schedule 1 thereto, to the extent of
Rs.23,49,27,410.23 and Rs.9,73,18,034/-.
iv. Shri Ranjit Bharthakur, Shri Raghuram lyer, and Shri Fraiser
Castelino have been charged for above contraventions in terms
of Section 42(1) of FEMA, 1999.
(ii) SCN II: Issued to EM Sporting Holdings Ltd., for contravention
of:
i. Section 6(2) of FEMA read with Regulation 5 of Foreign
Exchange Management (Permissible Capital Account
Transactions) Regulations, 2000 and also read with para 8 of
Schedule 1 to Regulation 5(1) of Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident Outside
India) Regulations, 2000 issued under section 6(3)(b) of FEMA,
1999, to the extent of Rs.23,49,27,410/- and Rs.9,73,18,034/-
totalling Rs.33,22,45,444/-.
ii. Shri Bishwarnath Bachun, Mrs. Samila Sivaramen, Mrs. Barbara
Jacqueline Haldi, and Shri Manoj Badale, Director of M/s EM
Sporting Holdings Ltd., and Shri Suresh Chellaram, Managing
Director & Chief Executive of M/s Chellarams PLC, Nigeria have
been charged for above contraventions in terms of Section 42(1)
of FEMA, 1999.
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(iii) SCN III: Issued to Shri Manoj Badale for contravention of
Section (3)(b) of FEMA to the extent of Rs.20,19,87,410/- and
another amount of Rs.5,07,25,000/-.
(iv) SCN IV: Issued to M/s N.D. Investments Ltd.:
i. for contravention of Section (3)(b) of FEMA, to the extent of
Rs.4,65,93,034/-.
ii. Shri Manoj Badale, Director has been charged for above
contraventions in terms of Section 42(1) of FEMA, 1999.
6. All parties replied to the Show Cause Notices and all the parties
were individually and personally heard by the Special Director of
Enforcement. Statements of all Respondents were recorded and all
parties were afforded opportunity to adduce evidence. The Special
Director in his order dated 30th January 2013 recorded his
satisfaction pertaining to all Respondents being guilty of
contravening Section 6(3)(b) of FEMA read with Regulation 5(1) of
the Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) Regulations, 2000 and paragraph 8 of
Schedule I further read with Regulation 5 of Foreign Exchange
Management (Permissible Capital Account Transactions) Regulations,
2000. Hence, in exercise of powers conferred on him under Section
13(1) of FEMA, the Special Director imposed penalty on each
Respondent in the Appeals before us in respect of separate show
cause notices as follows:
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Name of Respondent Penalty Imposed
(Rs. In Crores)
(i) JIPL 32.30
(ii) Ranjit Bartakur 6.40
(iii) Raghuram Iyer 5.10
(iv) Fraiser Castellino 6.40
(v) EMSH, Mauritius 18.90
(vi) Bishwarnath Bachun 2.45
(vii) Samila Sivaramen 2.45
(viii) Barbara Jacqueline Haldi 2.45
(ix) Suresh Chellaram 3.70
(x) ND Investments LLP 2.00
(xi) Manoj Badale 16.20
Total 98.35
Thus, the Special Director held all Respondents guilty of having
contravened the provisions of FEMA and the Regulations made
thereunder and imposed penalty on individuals against the respective
show cause notices. Total penalty of Rs. 98.35 Crores was directed to
be paid in the office of the Directorate of Enforcement within 45 days
from the date of receipt of the order.
7. Respondents assailed this order dated 30 th January 2013 before
the Tribunal. FEMA provides for a condition of pre-deposit of the
penalty amount for preferring an Appeal. Respondents, therefore,
made an application before the Tribunal seeking waiver of the
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condition of pre-deposit of the penalty amount and stay of the order
dated 30th January 2013. On account of a difference of opinion
amongst the members of the Tribunal, the matter was placed before
the Chairman for decision and upon consideration of respective
opinion of individual members of the Tribunal, the Chairman directed
Respondents to deposit 40% of the penalty as a pre-deposit in
addition to furnishing a bank guarantee for the remaining 60%
amount of the Adjudication Order. The pre-deposit direction was
assailed by Respondents in this Court by way of an Appeal.
By its order dated 24th December 2014, this Court admitted the
Appeals on three substantial questions of law, and after hearing the
parties, this Court was pleased to conclude that the imposition of
condition of cash deposit and bank guarantee failed to meet the ends
of justice. Thus, by another order dated 21 st January 2015, this Court
was pleased to substitute the pre-deposit order of the Tribunal and
directed Respondents to deposit total amount of Rs.15 Crores within
eight weeks from the date of receipt of the order. This Court also
directed the Tribunal to dispose the Appeals uninfluenced by its
prima facie observations.
8. The Appeals were then heard by the Tribunal and the
impugned order dated 11th July 2019 came to be passed. In its
finding, the Tribunal has recorded that the various propositions of
law raised by the parties are well settled by the Foreign Exchange
Gaikwad RD
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Tribunal and various High Courts and the Supreme Court and the
adjudicating officer is bound to follow the said decisions. The
Tribunal has found the order of the Special Director to be perverse
inasmuch as it failed to deal with many of the precedents of the High
Courts and the Supreme Court which are binding on the Adjudicating
officers. The Tribunal relied on many decisions especially the
decision of the Apex Court in the matter of (a) Wimco Ltd. Vs
Director of Enforcement,1 and (b) Union of India vs Kamalakshi
Finance Corporation Ltd.2 The Tribunal has re-appreciated the
evidence minutely and concluded absence of any intention or mens
rea on the part of Respondents in contravening the provisions of
FEMA. Many Respondents, who are individuals were not in charge of
the day-to-day management of the entities and were not even aware
of the remittances in the manner alleged as illegal. The Tribunal has
thus held that the parameters laid down by the Supreme Court and
the High Courts for imposition of penalty in quasi criminal
proceedings such as the present case are not wholly satisfied and
hence, imposition of an exorbitant penalty totalling to Rs.98.35
Crores be reduced to Rs.15 Crores. It is this reduction in the amount
of penalty which is assailed by Appellant in the present Appeals. The
penalties as imposed by Special Director and as modified by the
Tribunal read as under:
1 1997(94) Taxman 542.
2 1992 Supp (1) SCC 547.
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Appeal Name of Penalty Penalty reduced
No. Respondent Imposed by by the Tribunal as
the Special in the Impugned
Director Order (Rs. In
(Rs. In Crores)
Crores)
1/2020 JIPL 32.30 7.00
1/2021 Ranjit Bartakur 6.40 1.00
6/2021 Raghuram Iyer 5.10 Nil
8/2021 Fraiser Castellino 6.40 1.00
7/2021 EMSH, Mauritius 18.90 2.00
3/2021 Bishwarnath 2.45 Nil
Bachun
9/2021 Samila Sivaramen 2.45 Nil
5/2021 Barbara Jacqueline 2.45 Nil
Haldi
4/2021 Suresh Chellaram 3.70 Nil
2/2021 ND Investments 2.00 2.00
LLP
2/2020 Manoj Badale 16.20 2.00
TOTAL 98.35 15.00
9. Mr. Ashish Chavan, learned Counsel for Appellants has
criticized the findings of the Tribunal by saying that the Tribunal
ought not to have taken a lenient view and has erred in holding the
contraventions of the provisions of FEMA by Respondents as merely
technical. Mr. Chavan submitted that the Tribunal ought to have
appreciated that the arrangement of the flow of funds by
Respondents was made to route the investments through Mauritius as
the funds flowing into India from UK was not permissible especially
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in the light of admitted fact that they did not have the approval of the
RBI and the FIBP. Further, the Tribunal has not recorded any
justification in reducing the quantum of penalty especially in view of
the gross contraventions of the provisions of the FEMA by
Respondents which caused a significant loss to Government
exchequer. So saying, he proposed as many as sixteen questions of
law terming them to be 'Substantial Questions of Law' that needed to
be determined by this Court.
10. On the other hand, Mr. Rohan Shah, Counsel appearing for
Respondents defended the impugned order by drawing our attention
to various decisions of the Constitutional Courts pertaining to the
scope of judicial review under Section 35 of the FEMA, laying down
the parameters on which an Appeal of such a kind be entertained and
the justification of interference with a finding of fact as a question of
law. He also canvassed the doctrine of proportionality vis-a-vis
justification of interference by an Appellate Court. He took us
through the order passed by the Special Director of Enforcement and
pointed out the absence of any reasoning or justification for imposing
maximum penalty as provided in the Act. The charges in the show-
cause notices being answered in the affirmative yet there is no
discussion on the quantum of penalty imposed on Respondents. On
the contrary, the Tribunal has specifically dealt with each charge
against Respondents individually and collectively and reasoned as to
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how the exorbitant penalty imposed on Respondents individually is
inversely proportionate to the act attributed to each Respondent and
thereby wholly unjustified. In fact, there is a categorical finding of
perversity in the order passed by the Special Director. He has relied
upon the following cases:
Scope of judicial review under Section 35 of FEMA.
(1) Mohtesham Mohd. Ismail v. Enforcement Directorate,3
(2) Union of India v. Amarjeet Singh,4
(3) SEBI v. Mega Corp. Ltd.,5
(4) Sir Shadi Lal Sugar and Geeneral Mills Ltd. v. CIT ,6
Doctrine of proportionality - Interference of Court when justified.
(5) Excel Crop Care Ltd. v. CCI,7
(6) Hindustan Steel Ltd. v. State of Orissa,8
(7) Coimbatore District Central Coop. Bank v. Employees Assn.,9
Section 42(1)- "a person in-charge and responsible for the conduct of
the affairs of a company"
(8) Girdhari Lal Gupta v. D. H Mehta,10
(9) Katta Sujatha (Smt.) v. Fertilizers and Chemicals Travancore
Ltd. & Anr.11
11. We have perused the order passed by the Special Director as
well as the impugned order. We have also gone through the proposed
3 (2007) 8 SCC 254.
4 2009 SCC OnLine Del. 995.
5 2022 SCC OnLine SC 361.
6 (1987) 4 SCC 722.
7 (2017) 8 SCC 47.
8 (1969) 2 SCC 627.
9 (2007) 4 SCC 669.
10 (1971) 3 SCC 189.
11 (2002) 7 SCC 655.
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questions of law as suggested by Appellant in the Appeal memos.
12. At the outset, the sixteen questions placed before us as
'Substantial Questions of law' appear to be mere repetitions of each
other albeit having only an interchangeability of words. We thus, do
not find any reason to dwell on the questions individually as placed
for consideration by Appellant. The only issue that arises for our
consideration is whether interference by the Tribunal in the order of
the Special Director is justified on the touchstone of the doctrine of
proportionality.
13. The order of the Special Director clearly indicates that
although satisfaction in respect of contravention of the provisions of
the FEMA has been recorded, there is no explanation or any
discussion in respect of the basis on which maximum penalty has
been imposed. Mr. Chavan, in fairness, agreed. It appears that the
Special Director has taken the sum involved in the contravention as
alleged by the Investigating Officer of the Enforcement Directorate
and multiplied it by three to arrive at the quantum of penalty as
contemplated by Section 13(1A) of the FEMA. The Tribunal, on the
other hand, after going through each charge, has recorded a clear
finding that an exorbitant penalty has been imposed upon the
individuals arrayed without recording any findings on the specific
roles of said individuals. Judicial precedents clearly established that
the onus of proving the role of an individual and specifically proving
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that the said person was in day-to-day management of the affairs of
the company is that of the Department. The Tribunal after going
through the facts of the matter has also found the Department to
have completely failed in the discharge of this burden of proof. The
Special Director has simply re-produced the provisions of the FEMA
to justify the imposition of penalty without any discussion on the
corresponding act attributed to each individual to deserve such a
penalty. The imposition of maximum penalty is justified only if it is
shown that the person was in-charge and responsible for the
functioning of the company, having some motive to benefit from the
transaction in question. The Tribunal has particularly noted the
absence of mala fides and mens rea on the part of Respondents. The
Tribunal has further held that the Special Director has not discussed
any specific role of any individual Respondent to justify the
invocation of the provisions of the FEMA and further calling for
imposing of maximum penalty.
14. On the merits of the case, the Tribunal has observed that there
was no other way for Respondents to participate in the bidding
process for the IPL franchise organised by the BCCI except by making
remittance directly to the BCCI, which essentially accounts for a
major portion of the total remittances in question.
(a) The Tribunal has found Ranjit Barthakur (Respondent in
FEMA Appeal No.1 of 2021), the Chairman and Director of JIPL to
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never have been responsible for regulatory compliance on day-to-day
basis and neither was he a party to nor did he control or take any
decision with regard to subject remittances.
(b) Fraiser Castellino (Respondent in FEMA Appeal No.8 of 2021)
ceased to be a Director on 1st October 2008 and subsequently, he was
not involved with the business or activities of JIPL. Thus, the
Tribunal has vindicated him from any violation as alleged by the
Enforcement Directorate.
(c) Raghuram Iyer (Respondent in FEMA Appeal No.6 of 2021) has
also been absolved on the ground that his main role in the
organisation was generation of revenue through the sale of
commercial rights in connection with the cricket team and its players
and his responsibility was for sales and marketing activity of the
franchise. Moreover, he resigned from the directorship of JIPL in
2016. All the respective remittances took place when Raghuram Iyer
was not a Director and hence, imposition of maximum penalty on
him was held to be completely unjustified.
(d) Bishwarnath Bachun (Respondent in FEMA Appeal No.3 of
2021) did not have any role in the daily operations of EMSH and was
not in overall control of its business. The remittances attributed to
Bishwarnath Bachun were made at a time when he was not even
involved with the affairs of the group.
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(e) Samila Sivaramen (Respondent in FEMA Appeal No.9 of 2021)
was also a representative of Tresco International Limited, one of the
shareholders of the EMSH and also had no role in the daily
operations of the EMSH. She was not even aware of the remittances
attributed to her as EMSH was neither in existence nor had
operational bank account at that point of time. There is no
justification of imposing any penalty on Samila Sivaramen.
(f) In reference to Barbara Haldi (Respondent in FEMA Appeal
No.5 of 2021), the Tribunal has found her to be mere nominee
Director of EMSH and had no role in the daily operations of EMSH.
She was also not aware of any remittances and in the absence of
mens rea, imposition of penalty is totally unjustified.
(g) Suresh Chellaram (Respondent in FEMA Appeal No.4 of 2021)
was found to be under bona fide belief that the remittances made by
the EMSH were legal and were made for business emergencies. The
intention of routing money through offshore entities for meeting
financial needs of JIPL were clearly set out and thus, when there was
requirement of payment to be made in relation to franchise, it was
only inevitable that the money would be arranged by promoter and
in such a scenario, the remittance made was purely business decision
and not a deliberate act by Suresh Chellaram to flout any law or
regulation in force at the relevant time.
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(h) In so far as Manoj Badale (Respondent in FEMA Appeal No.2 of
2020) is concerned, the Tribunal has found that although there was
no mens rea on the part of Badale, it is an admitted position that
Badale arranged for payments and although the acts of Badale are
held to be under bona fide belief that the remittances made by him
were legal, Badale and ND Investments LLP are responsible for the
transactions in which the contraventions have happened. However,
the Tribunal did not find any justification for imposing maximum
penalty and has reduced the same.
15. Overall, the Tribunal has found that firstly, no loss has been
caused to exchequer; secondly, the remittances have come into India
and remained in India. This is not a case where any foreign
exchange has gone out of India; thirdly, the remittances were utilised
for the purposes for which they were intended and there is not even
an allegation of utilization of the money for extraneous purposes;
fourthly the entities have not gained any benefit whatsoever and in
fact suffered considerable financial detriment as shares having
beneficial transferable interest have not been issued against
remittances to the said entities for the past 11 years; and fifthly,
'Rajasthan Royals' franchise has participated in the IPL since 2008
with no other allegation of contravening any FEMA provisions or
regulations made thereunder.
Thus, the Tribunal found no justification in the order passed by
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the Special Director for imposing maximum penalty on Respondents
and contraventions are categorized at best as technical and venial.
16. In the decision of the Hon'ble Supreme Court of India in the
case of Sir Shadilal Sugar and General Mills (supra) , while dealing
with the issue as to whether there was justification for an
interference by the High Court in a finding of fact by transforming
the same into the question of law, the Apex Court has held as follows:
"14........This Court reiterated that findings on questions
of pure fact arrived at by the Tribunal were not to be
disturbed by the High Court on reference unless it
appeared that there was no evidence before the Tribunal
upon which they, as reasonable men, could come to the
conclusion to which they have come; and this was so,
even though the High Court would on the evidence have
come to a conclusion entirely different from that of the
Tribunal. In other words, such a finding could be
reviewed only on the ground that there was no evidence
to support it or that it was perverse.
15. ........Where an ultimate finding on an issue was an
inference to be drawn from the facts found, on the
application of any principles of law, there would be a
mixed question of law and fact, and the inference from
the facts found was in such a case, a question of law. But
where the final determination of the issue equally with
the finding or ascertainment of the basic fact did not
involve the application of any principle of law, an
inference from the facts could not be regarded as one of
law.........."
17. In the instant case, there is a finding of fact by the Tribunal and
all the relevant facts have been considered in a proper light. The
Tribunal has arrived at its conclusion on the basis of evidence to
support and after analysing the said evidence. The findings are far
from being perverse. Thus, no question of law arises in the case. The
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question raised by Appellant relating to justification of the reduction
of penalty imposed by the Special Director is purely based on facts
and no question of law even remotely, arises from the same.
18. We find that in fact no justification has been recorded by the
Special Director to impose maximum penalty as opposed to the
Tribunal having considered relevant material has interfered and
reduced the penalty. We do not find it proper to transgress the limits
of this Court's jurisdiction, preferring the view of the Tribunal or that
of the Special Director, one way or the other, in regard to factual
appreciation of the finding of facts in the matter.
19. The parameters for imposition of penalty have also been
considered by the Hon'ble Supreme Court of India in Excel Crop Care
Ltd. (supra) and it has been held as follows:
"42. ........Imposition of penalty is not automatic. Levy of
penalty is not only discretionary in nature but such discretion
is required to be exercised on the part of the Assessing Officer
keeping relevant factors in mind........Penalty proceedings are
not to be initiated, as has been noticed by the Wanchoo
Committee, only to harass the Assessee. The approach of the
Assessing Officer in this behalf must be fair and objective."
20. In Hindustan Steel Ltd. (supra), the Apex Court has held as
follows:
"8. ......An order imposing penalty for failure to carry out
statutory obligation is the result of a quasi-criminal proceeding
and penalty will not ordinarily be imposed unless the party
obliged either acted deliberately in defiance of law or was
guilty of conduct contumacious or dishonest or acted in
conscious disregard of its obligation. Penalty will also not be
imposed because it is lawful to do so. Whether penalty should
be imposed for failure to perform a statutory obligation is a
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matter of discretion of the authority to be exercised judicially
or on a consideration of all relevant circumstances..........."
21. In Coimbatore District Central Co-operative Bank (supra) , the
Supreme Court has explained the concept of proportionality in the
following manner:
"18. 'Proportionality' is a principle where the Court is
concerned with the process, method or manner in which the
decision maker has ordered is priorities, reached a conclusion
or arrived at a decision. The very essence of decision making
consists in the attribution of relative importance to the factors
and considerations in the case.........
19.........the principle of proportionality needs to be imbibed in
to any penalty imposed under Section 27 of the Act. Otherwise
excessively high fines may over-deter, by discouraging
potential investors which is not the intention of
Act.................."
22. We find that the Special Director has completely failed to apply
the doctrine of proportionality as interpreted and elucidated by the
Apex Court in its various decisions, while choosing to impose
maximum penalty on Respondents. Having gone through the
impugned order, this Court does not find anything perverse in the
findings, reasoning and conclusion of the Tribunal. We are in
agreement with the finding of the Tribunal that in the absence of any
discussion or justification pertaining to the basis for imposing the
maximum penalty and juxtaposing this with the alleged acts
attributed to each individual, the order of the Special Director is
unsustainable.
In any case, we find that the matter is of pure appreciation of
evidence and does not raise any question of law. As held in
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Mohtesham Mohd. Ismail (Supra) by the apex Court, in an Appeal
under Section 54 of FERA, the High Court should exercise its
appellate power only "When there existed a question of law and not a
question of fact". Even under Section 35 of the FEMA, an Appeal will
lie only in regard to a question of law arising out of such order as
appealed against. In the present case, Appellant is unable to point
out any such question of law that arises for determination from the
impugned order of the Tribunal. What has been pointed out are
essentially questions of fact, involving appreciation of evidence.
23. In this view of the matter, this Court does not find any error in
the impugned judgment of the Tribunal. Consequently, these Appeals
are without merits and are dismissed as such. There will be no order
as to costs.
24. In view of dismissal of Appeals, Interim Applications pending
therein, also stand disposed of.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
Digitally
signed by RAJU
DATTATRAYA
RAJU GAIKWAD
DATTATRAYA
GAIKWAD Date:
2023.12.13
15:03:51
+0530
Gaikwad RD
