Andhra HC (Pre-Telangana)
Venkat N.R. Akkineni Occ: Managing ... vs Counsel For The on 12 April, 2013
Author: K.G.Shankar
Bench: K.G.Shankar
HON'BLE SRI JUSTICE K.G.SHANKAR
C.M.S.A.Nos.2 of 2009 and batch
dated:12-4-2013
Venkat N.R. Akkineni occ: Managing Director, M/s. Heart Entertainment
Limited,C/o.Annapurna Studios,Road No.2, Jubilee Hills, Hyderabad-500 033; and
another ... Appellants
Appellate Tribunal for Foreign Exchange, Ministry of Law Justice & Company
Affairs, Janpath (Indian Oil) Bhavan, New Delhi 110 001; and 3 others..
Respondents
Counsel for the Appellants: Sri S.Ashok Anand Kumar
Counsel for Respondents 2 &3: Sri P.S.P.Suresh Kumar
<Gist:
>Head Note:
?Cases referred:
1. 2007 (4) ALD 35
2. AIR 1961 SC 1633(1)
3. 1969 (3) SCC 644
4. AIR 1969 SC 460
5. [1984] 146 ITR 341
6. 1969 (2) SCC 627
7. (2006) 5 SCC 361
C.M.S.A.Nos.2 and 3 of 2009
Common Judgment:
The two second appeals are directed against the orders of the Appellate Tribunal
for Foreign Exchange, New Delhi (the Appellate Tribunal, for short), in Appeal
Nos.125 of 2006 and 124 of 2006. A common order was passed by the Appellate
Tribunal on 22-10-2008 in the two appeals. The appellants herein assailed the
orders of the Appellate Tribunal. C.M.S.A.No.2 of 2009 is by the Managing
Director of M/s. Heart Entertainment Limited, Hyderabad. C.M.S.A.No.3 of 2009
is by the Company itself viz., M/s. Heart Entertainment Limited, Hyderabad. As
the appeals arise common questions, both the appeals are disposed of through
this common judgment.
2. M/s. Heart Entertainment Limited, Hyderabad (the Company, for short),
obtained the approval of the Reserve Bank of India (RBI, for short) for
establishing
a foreign concern in the United States of America
(the USA, for short) in the field of animation software. The Company invested
US $ 1,75,000 through two instalments in August, 1999. The Company however did
not follow Regulation 15(iii) of Foreign Exchange Management (Transfer or Issue
of any Foreign Security) Regulations, 2000 (the Regulations, 2000, for short)
vide Notification No.FEMA 19/RB-2000, dated 03-5-2000, as it failed to submit
Annual Performance Report (APR, for short). The Company also failed to furnish
the information called for under Section 37 of the Foreign Exchange Management
Act, 1999 (FEMA, for short) read with Section 131(1A) of the Income Tax Act,
1961, by failing to furnish information and details such as copies of the
Audited Annual Accounts, APRs, copies of the Share Certificates and other
documents in evidence of investment in foreign equity together with the details
of dividend and royalty.
3. The Company responded to the Notice dated
27-02-2003 through reply dated 30-6-2004 that the Company obtained approval from
the RBI on 02-02-1999 for investment of US $ 1,75,000 in Overseas Joint Venture
in the USA, that the Company held 35% of the equity stock in M/s. Startoons
Incorporation (Inc.,), that the Company has executed works worth US $ 2,27,430
and that the Company received Share Certificate from M/s. Startoons
International LLC (Limited Liability Company), USA, for US $ 1,75,000. The
Company further claimed that no dividend could be declared as the Company went
into losses on account of slump in animation industry and that the Company had
to close the operations to avoid further losses. It also claimed that the APRs
could not be furnished to the RBI and that the Company did not provide the
requisite details which was because the accounts of LLC were not compulsorily
auditable under the United States Local Laws.
The Company claimed that it submitted APRs for the years 2000 to 2003 to the RBI
and that the audited financial statements, Directors' Report and Certificate of
Incorporation of the Joint Venture could not be furnished owing to circumstances
beyond the control of the Company.
4. Considering that the Company contravened the provisions of Section 6(3) of
FEMA read with Regulation 15(iii) of the Regulations, 2000 [Foreign Exchange
Management (Transfer or Issue of any Foreign Security) Regulations, 2000 through
Notification No.456(E) (FEMA 19/2000-RB, dated 03-5-2000) of the RBI] and
rendered themselves liable to be proceeded against under
Section 13(1) of FEMA, 1999, Show Cause Notice dated 18-02-2005 was issued to
the Company. Show Cause Notice was also issued to the Managing Director in
terms of Section 42(1) of FEMA holding that the Managing Director was
responsible for the non-compliance of the Rules and Regulations.
5. The Company issued a reply to the Show Cause Notice reiterating their stand
that it obtained approval of the RBI for direct investment of US $ 1,75,000 in
Overseas Joint Venture in the USA with 35% of the equity stock and that as the
Rules and Regulations in the USA did not obligate the Company to undergo audit,
the accounts could not be audited by an Accountant in the USA. It claimed that
the non-submission of APRs and audited accounts were beyond their control and
that
they were unintentional and without any mala fides.
6. The dispute came up before the Deputy Director, Directorate of Enforcement
(FEMA), Government of India, Bangalore. Through orders dated 29-9-2005, the
Deputy Director imposed a penalty of Rs.30,00,000/- upon the Company and
Rs.20,00,000/- upon the Managing Director of the Company. Aggrieved by the
same, the Company preferred Appeal No.124 of 2006 before the Appellate Tribunal
whereas the Managing Director preferred Appeal No.125 of 2006. After
considering the respective claims, the Appellate Tribunal dismissed the appeals.
Hence, the present civil miscellaneous second appeals.
7. The point for consideration is whether the Company and the Managing Director
are liable for imposition of penalty, and if so at what rate
8. Sri S.Ashok Anand Kumar, learned counsel for the appellants, contended that
there was no violation, much less intentional violation on the part of the
Company and the Managing Director, so much so, neither of them is liable for
prosecution and imposition of penalty.
9. Sri P.S.P.Suresh Kumar, learned counsel representing the Enforcement
Directorate (respondents 2 and 3 herein), on the other hand, submitted that the
appellants did not submit the APRs within the statutory period and never
submitted the audited accounts and that the appellants consequently are liable
to pay penalty under Section 13 of the FEMA, 1999.
MAINTAINABILITY OF C.M.S.As:
10. The first question that arises for consideration is whether the
appeals are maintainable and if so,
on what basis
11. The Foreign Exchange Management Act, 1999 (FEMA, for short) was
enacted to replace the Foreign Exchange Regulation Act, 1973 (FERA, for short).
The present civil miscellaneous second appeals are laid under Section 35 of
FEMA. The relevant portion of Section 35, FEMA reads:
"35. Appeal to High Court
Any person aggrieved by any decision or order of the Appellate Tribunal may file
an appeal to the High Court within sixty days from the date of communication of
the decision or order of the Appellate Tribunal to him on any question of law
arising out of such order:
...............................................................
..............................................................."
FEMA thus envisages an appeal from the decision or order of the Appellate
Tribunal on any question of law arising out of such an order.
12. The learned counsel for the respondents 2 and 3 contended that there is no
substantial question of law involved in these appeals and that these appeals
therefore are not maintainable.
13. The learned counsel for the appellants,
on the other hand, drew a distinction between
Section 100 C.P.C and Section 35, FEMA and submitted that under Section 100
C.P.C., a second appeal would lie on a substantial question of law in the case,
whereas under Section 35, FEMA, a second appeal would lie if
a question of law arises from such decision or order.
14. The first point to be noticed is that an appeal under Section 35, FEMA, lies
if there is a question of law which need not be a substantial question of law.
Secondly, question of law need not be relating to the case; it is sufficient if
it arises from the decision of the Appellate Tribunal.
15. In Enforcement Directorate, Government of India, Hyd. v. Ilyas Moosa1, a
learned single Judge of this Court observed that a civil miscellaneous second
appeal would lie on any question of law arising out of an order of the Appellate
Tribunal in view of Section 35, FEMA.
16. The learned counsel also pointed out that there is no embargo under Section
35, FEMA that the High Court should formulate substantial question of law and
then answer the same as in the case of a second appeal.
17. In a five-Judge Bench judgment of the Supreme Court in Commissioner of
Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd.,2 a question arose as to
the maintainability of an appeal under Section 66(1) of the Income-tax Act,
1922. The majority considered
a four-fold circumstance. The Supreme Court held that when a question is raised
before the Appellate Tribunal and is answered by the Appellate Tribunal and a
question is raised before the Appellate Tribunal but is not answered by the
Appellate Tribunal, such question shall be considered to be points arising out
of the order of the Appellate Tribunal. While the Supreme Court further
observed that if a question is not raised before the Appellate Tribunal but is
answered by the Appellate Tribunal, such a question shall be treated as a
question arising out of the order of the Appellate Tribunal; the Supreme Court
further held that if a question is neither raised nor answered by the Appellate
Tribunal, it would not be considered to be a question arising from the order.
18. The learned counsel for the appellants contended that the issue relating to
the violation of the Regulations is indeed considered by the Primary Authority
as well as the Appellate Tribunal and that the question relating to the
violation of the Regulations by the appellants consequently is a question
arising from the order of the Appellate Tribunal.
19. In an appeal arising under the Income Tax Act, 1922, in C.I.T., W.B.III v.
K.S.RAMPURIA3, the Supreme Court pointed out:
"4. It is well established that the High Court is not
a Court of Appeal in a reference under Section 66 of the Act and it is not open
to the High Court in such
a reference to embark upon a reappraisal of the evidence and to arrive at
findings of fact contrary to those of the Appellate Tribunal. It is the duty of
the High Court to confine itself to the facts as found by the Appellate Tribunal
and answer the question of law in the setting and context of those facts. It is
true that the finding of fact will be defective in law if there is no evidence
to support it or if the finding is unreasonable or perverse. But in the hearing
of a reference under Section 66 of the Act it is not open to the assessee to
challenge such a finding of fact unless he has applied for a reference of the
specific question under Section 66(1). In India Cements Ltd. v. Commissioner of
Income-tax (60 KTR 52), it was pointed out by this Court that in a reference the
High Court must accept the findings of facts reached by the Appellate Tribunal
and it is for the party who applied for a reference to challenge those findings
of fact, first, by an application under Section 66(1). If the party concerned
has failed to file an application under Section 66(1) expressly raising the
question about the validity of the findings of fact, he is not entitled to urge
before the High Court that the finding was vitiated for any reason. The same
view has been expressed by this Court in a later case in Commissioner of Income-
tax v. Sri Meenakshi Mills Ltd. (63 ITR 609). We are therefore of the opinion
that the High Court was in error in reappraising the evidence before the
Appellate Tribunal and in interfering with its finding that the Income-tax
Officer had no reason to believe that there was an omission on the part of the
assessee to disclose fully and truly all the material facts necessary for the
assessment."
It was thus held that the High Court should confine itself to the facts as
recorded by the Appellate Tribunal and answer the question of law in the setting
and context of those facts.
20. In Oriental Investment Co. (P) Ltd., v. Commissioner of Income-tax, Bombay4,
in an appeal arising under Sections 66(1) and 66(2) of the Income-tax Act, 1922,
the Supreme Court elaborately considered the limits under Section 66 of the
Income-tax Act, 1922; in the process of which, the Supreme Court also considered
the meaning of question of law. The Supreme Court held that the conclusions of
fact arrived at by the Tribunal or the Appellate Tribunal can be challenged on
the ground that they are not supported by legal evidence or on the ground that
the conclusions are perverse and that the High Court cannot otherwise go into
the conclusions of fact arrived at by the Tribunal while exercising its powers
under Section 66 of the Income-tax Act, 1922. Admittedly, Section 66 of the
Income-tax Act, 1922, is para materia Section 35, FEMA, insofar as it relates to
the jurisdiction of the High Court.
21. In J.K.BARUAH v. COMMISSIONER OF INCOME-TAX, ASSAM5, a Division Bench of the
Gauhati High Court held:
"If the Tribunal ignores or excludes admissible and relevant evidence and takes
into consideration material irrelevant to the inquiry or considers material
which is irrelevant to the inquiry, then this court can treat the same as a
question of law and deal with the order of the Tribunal accordingly. Similarly,
if it appears that the Tribunal has acted without any evidence or upon a view of
the facts which could not be reasonably entertained, the question becomes a
question of law which is examinable by the High Court."
The Division Bench further observed that a question of law not raised before the
Tribunal and not dealt with by the Tribunal in its order cannot be said to have
arisen from such an order.
22. The substratum of all these decisions is that if
a question is raised by the Appellate Tribunal or answered by the Appellate
Tribunal, whether raised or otherwise, it would constitute a question of law for
the consideration of the High Court. Further, any perverse conclusion would
also constitute a question of law.
23. Sri S.Ashok Anand Kumar, learned counsel for the appellants, pointed out
that the Tribunal and the Appellate Tribunal held that the appellants
contravened Regulation 15(iii) of Foreign Exchange Management (Transfer or Issue
of any Foreign Security) Regulations, 2004 and that when the order of the
Appellate Tribunal is challenged, it is tantamount to a question of law, so much
so, the appeal is maintainable. Evidently, the Primary Authority held and the
Appellate Tribunal confirmed that the appellants violated the terms and
conditions of Regulation 15(iii) read with Section 6(3), FEMA. Consequently,
the appellants are primarily raising a question of law. As a question of law
arises for consideration, these civil miscellaneous second appeals obviously are
maintainable.
FULFILLMENT OF THE CONDITIONS BY THE APPELLANTS:
24. The RBI informed the 2nd respondent that the appellants violated
Regulation 15(iii) issued under Section 37, FEMA read with Section 131(1A) of
the Income Tax Act, 1922. When the appellants were put to notice through a Show
Cause Notice, the Managing Director issued a reply denying that the appellants
violated the conditions of sanction of foreign exchange, viz., the non-
submission of APRs and Financial Statements, Directors' Report and Certificate
of Incorporation for Joint Venture. Holding that the explanation offered was
not acceptable, penalty was imposed by the Primary Authority and was confirmed
by the Appellate Tribunal. Consequently, the question of law that arises for
consideration is whether the appellants violated the terms of Regulation 15(iii)
of the Regulations, 2000, under FEMA. Inter alia, the learned counsel for the
appellants contended that there was no violation of the Regulations by the
appellants and that in fact, Regulation 15(iii) under FEMA is not a statutory
Regulation, so much so, the violation of the same cannot attract penal
consequences.
25. Section 47 of the FEMA empowers the RBI to make Regulations under the
FEMA. The Regulations in question were made in exercise of the powers under
Section 47 of the FEMA as well as under Section 6(3)(a) of the FEMA.
Consequently, these Regulations have statutory force. The contention of the
learned counsel for the appellants that the Regulations, 2000 are not statutory
Regulations and are directory but not mandatory, therefore, cannot be accepted.
The consequent contention of the appellants that the violation of Regulation
15(iii) of the Regulations, 2000 does not attract penal consequences also cannot
be sustained.
26. In the Show Cause Notice dated 18-02-2005 issued by the Deputy
Director of Enforcement, it was alleged that the approval of the RBI for setting
up
a foreign concern in the USA involving equity investment of US $ 1,75,000 was
subject to the conditions that the Company shall submit certified true copies of
audited balance-sheet as well as profit and loss account together with the
report of the Directors on the working of the Overseas Foreign Concern during
the year and
a Certificate of Incorporation of the Joint Venture.
The Show Cause Notice further envisages that the Company, which has acquired
foreign security, shall submit to the RBI, APR each year in respect of each
Joint Venture outside India within 30 days from the date of expiry of the
statutory period as prescribed by the respective Laws.
27. It is the contention of the learned counsel for the appellants that no
period is prescribed by the USA as the host country for the finalisation of the
audited accounts and that the condition that the Company shall submit APR within
30 days, therefore, has become inapplicable. However, Clause (6) of the
Sanction Letter issued by the RBI on 02-02-1999 contemplated that the APRs shall
be submitted within 6 months from the date of the closing of the relevant
accounting period of the host country in the event no statutory period is
provided by the foreign country. Consequently, in the event the USA as the host
country did not provide for any period, the 30 days' period as envisaged in the
Sanction Letter stands enlarged to 6 months before the expiry of which, the APRs
and other details like audited accounts should be submitted to the RBI.
28. In response to the Show Cause Notice, the Company issued a reply on
10-3-2005. It was stated by the Company:
"5. HEL could not submit the Annual performance reports to RBI as the JV Company
did not provide us the details in time. The Directors/Managers of the JV
Company informed us that, as the company being an LLC it is not bound by the
local regulations/statutes to get their annual accounts audited by an
Accountant. We expressed our inability to submit the audited accounts with RBI,
Hyderabad. But the officers concerned were not appreciating the facts of the
local regulations and insisting for the audited accounts. We explained them
that getting the accounts audited by the Accountant in US would be costly and
the JV partners were not inclined to spend that kind of money as the operations
were not encouraging. HEL is helpess in this issue as we were unable to impress
upon the JV Company to get the accounts audited. The copy of the APR's filed
with RBI, Hyderabad up to 31st March 2003 were enclosed."
The explanation further claimed in para 9:
"The local regulations for LLC's (Limited Liability Company) in US exempts the
company from the conduct of regular meetings, annual general meetings, auditing
of accounts etc. (The write downloaded from the Website is enclosed duly
highlighted the relevant para)."
29. The learned counsel for the appellants contended that in the light of
detailed explanation, the appellants cannot be considered to have violated
Regulation 15(iii) of the Regulations, 2000 and that the appellants are not
liable for levy of any penalty. It is contended by the appellants that it must
be shown by the respondents 2 and 3 that the appellants contravened the
provisions of the Regulations, 2000 and that
there should be an adjudication of the contravention. Section 16, FEMA, deals
with the adjudication by the Primary Authority while Section 28, FEMA, provides
for the procedure and powers of the Appellate Tribunal.
The main case of the appellants is that the host country did not provide for
compulsory audit of the accounts of the Limited Companies and that it
consequently became impossible for the appellants to submit duly audited
accounts. It is the contention of the learned counsel for the appellants that
the subsidiary Company in the host country was not willing to submit its
accounts for auditing where there is no statutory compulsion for
a Limited Company to get its accounts audited; because the subsidiary Company
considered it expensive to get its accounts audited.
30. The learned counsel for the appellants, inter alia, contended that the
order by the Primary Authority is not supported by reasoning and that the order
more or less is imposition of penalty accepting the contentions of the charge.
The learned counsel for the appellants contended that the order of the Primary
Authority suffers from non-application of the mind. The order was subsequently
confirmed by the Special Director as the Appellate Authority. The order of the
Primary Authority as well as the Appellate Authority have reasonably explained
the circumstances in which the contention of the appellants herein could not be
accepted. I regret to disagree with the claim of the learned counsel for the
appellants that the orders of the Primary Authority and the Appellate Authority
are laconic and deserve to be set aside. On the other hand, both the
Authorities have expressed sufficient reasons for rejecting the contentions of
the appellants herein. That apart, the learned counsel for the respondents 2
and 3 contended that when the RBI prescribed a condition, the condition is
liable to be complied with and that if the appellants failed to establish that
it complied with the conditions, the violation as alleged by the Enforcement
Directorate has been made out. In fact, the conditions as provided by the
Sanction Letter as well as Regulation 15(iii) of the Regulations, 2000, are
identical obligating the appellants to comply with the conditions. It therefore
is not open for the appellants to turn round now and claim that the conditions
cannot be enforced.
31. One of the contentions raised by the learned counsel for the
appellants is that the appellants shall fulfill their obligations on the
happening of an event and that the appellants cannot be blamed for not
fulfilling their obligations since the expected event did not occur. Clause (6)
of the Sanction Letter obligated the Company to submit audited balance-sheet as
well as the profit and loss account together with the Directors' Report on the
working of the Overseas Foreign Concern during the year and also APRs. The only
contingency is that the concerned documents ought to be submitted within
30 days after the expiry of the statutory period for the finalisation of the
audited annual accounts as applicable in the host country and in the absence of
such a period for the host country, within 6 months from the date of the closure
of the relevant accounting period of the foreign concern. As there is no
provision of compulsory auditing of the accounts of the foreign concern, the
appellants should have submitted the documents within 6 months from the date of
the closure of the accounting period for the host country. It is not open for
the appellants to now claim that the 30 days time as mentioned has become
irrelevant, that such a contingent event did not take place, that the condition
has not been fulfilled and that there is no obligation on the part of the
appellants to submit the documents envisaged by Clause (6) of the Sanction
Letter. It is not as though the appellants were not aware about their
obligation.
The appellants in fact submitted APRs from 2000 to 2003 belatedly on 25-8-2004.
It is not open for the appellants to approbate and reprobate fulfilling one of
the conditions of the sanction and failing to comply with the other conditions
adamantly taking the stand that the conditions are not applicable.
32. The learned counsel for the appellants, inter alia, submitted that the
appellants are minority stakeholders and that the question of mismanagement of
the Company by the appellants would not arise.
As rightly submitted by him, mismanagement of the Company is not the claim by
the Enforcement Directorate. Their only case is that the Company failed to
discharge its obligations and thus exposed itself to penal consequences. In
summation, it may be pointed out that the appellants were sanctioned foreign
exchange on certain conditions to be fulfilled in future, the failure of which
would attract penal consequences. It is evident from the very contentions of
the appellants that the appellants did not fulfill those conditions. In the
reply to the Show Cause Notice, the appellants failed to explain the
circumstances in which they did not fulfill the terms and conditions provided by
Clause (6) of the Sanction Letter. Thus, the appellants themselves agree that
the terms and conditions stipulated by the Sanction Letter have not been
fulfilled by the appellants. The Primary Authority and the Appellate Authority
therefore were perfectly justified in holding that the appellants violated the
terms and conditions of the allotment and consequently violated Regulation
15(iii) of the Regulations, 2000.
PENALTY:
33. The Primary Authority imposed penalty of Rs.30,00,000/- against the
Company and Rs.20,00,000/- against the Managing Director under Section 42 read
with Section 13 of the FEMA.
Section 13(1) of the FEMA reads:
"13. Penalties
(1) If any person contravenes any provision of this Act, or contravenes
any rule, regulation, notification, direction or order issued in exercise of the
powers under this Act, or contravenes any condition subject to which an
authorisation is issued by the Reserve Bank, he shall, upon adjudication, be
liable to a penalty up to thrice the sum involved in such contravention where
such amount is quantifiable, or up to two lakh rupees where the amount is not
quantifiable, and where such contravention is a continuing one, further penalty
which may extend to five thousand rupees for every day after the first day
during which the contravention continues.
(2) .......................................
Explanation.-For the purposes of this sub-section, "property" in respect
of which contravention has taken place, shall include-
(a) deposits in a bank, where the said property is converted into such deposits;
(b) Indian currency, where the said property is converted into that currency;
and
(c) Any other property which has resulted out of the conversion of that
property."
34. The contravention of the provisions of the FEMA, the Rules or the
Regulations attracts penalty which may extend up to thrice the sum involved in
the contravention if the amount can be quantified and up to Rs.2,00,000/- if the
amount covered by the contravention cannot be quantified and a further penalty
up to an extent of Rs.5,000/- for each day's contravention. Regarding the
penalty, as an alternative relief, the learned counsel for the appellants
contended that the contravention in this case is not quantifiable and that the
appellants consequently can be penalised to
a maximum extent of Rs.2,00,000/-.
35. In HINDUSTAN STEEL LTD. v. STATE OF ORISSA6, penalty was sought to be
imposed under the provisions of Orissa Sales Tax Act, 1947. The Supreme Court
observed:
"8. Under the Act penalty may be imposed for failure
to register as a dealer-Section 9(1) read with
Section 25(1)(a) of the Act. But the liability to pay penalty does not arise
merely upon proof of default in registering as a dealer. An order imposing
penalty for failure to carry out a 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 not also be imposed merely because it is lawful to do
so. Whether penalty should be imposed for failure to perform a statutory
obligation is a matter of discretion of the authority to be exercised judicially
and on
a consideration of all the relevant circumstances. Even if a minimum penalty is
prescribed, the authority competent to impose the penalty will be justified in
refusing to impose penalty, when there is a technical or venial breach of the
provisions of the Act or where the breach flows from a bona fide belief that the
offender is not liable to act in the manner prescribed by the statute. Those in
charge of the affairs of the Company in failing to register the Company as a
dealer acted in the honest and genuine belief that the Company was not a dealer.
Granting that they erred, no case for imposing penalty was made out."
36. The Supreme Court thus observed that the imposition of the penalty was not
automatic and that the penalty is imposed only when a party who failed to
register as a dealer was acting deliberately in defiance of law or was guilty of
dishonest conduct or was acting in conscious disregard of its obligations.
37. In CHAIRMAN, SEBI v. SHRIRAM MUTUAL FUND7, regarding penalty for
contravening provisions of Securities and Exchange Board of India Act, 1992, the
Supreme Court observed that the quantum of penalty is discretionary for the
authority. The decision of HINDUSTAN STEEL LTD. (6 supra) was indeed considered
by this decision but the Court held that to constitute the contravention of the
provision obligating the party to penal consequences need not be coupled with
mens ria. Obligation envisaged by Regulation 15(iii) of the Regulations, 2000,
as well as Clause (6) of the Sanction Letter are mandatory. The failure to
comply with them certainly attracts penal consequences under Section 13 of the
FEMA. The question consequently is as to the quantum of penalty leviable
against the two appellants.
38. The Primary Authority imposed penalty of Rs.30,00,000/- against the Company
and Rs.20,00,000/- against the Managing Director of the Company. I may assume
for the purpose of quantifying the penalty that the contravention cannot be
quantified. The penalty in such a circumstance is not more than Rs.2,00,000/-.
The rider however is that the contravener is liable to penalty up to an extent
of Rs.5,000/- for each day's contravention. While the Sanction Letter was
issued on 02-02-1999, the Company would appear to have utilised the sanction in
1999 itself. Right from the beginning of 2000, the non-filing of the statements
and returns envisaged by Clause (6) of the Sanction Letter is
a violation attracting penalty of not more than Rs.5,000/- per each day. Even
if the penalty is worked out at Rs.2,00,000/- and penalty at the rate of
Rs.5,000/- per day is added to the same, it would be much more for the past over
12 years. The Appellate Tribunal confirmed the order on 30-3-2006. I consider
that imposition of penalty at Rs.2,00,000/- and working out additional penalty
at Rs.5,000/- per day for over 5 years from 2000 onwards is far less than
Rs.30,00,000/-. The Primary Authority as well as the Appellate Authority would
appear to be in fact sympathetic with the case of the appellants in imposing
penalty of Rs.30,00,000/- against the Company and Rs.20,00,000/- against the
Managing Director of the Company. The penalty imposed is quite reasonable and
does not warrant interference. The penalty as imposed by the Primary Authority
and confirmed by the Appellate Authority deserves to be confirmed.
CONCLUSION:
39. For various reasons mentioned, the appeals are found to be devoid of
merits and are accordingly dismissed. There shall be no order as to costs.
__________________
K.G.SHANKAR, J.
12th April, 2013.
The learned counsel for the appellants orally sought the permission of the Court to move the Supreme Court under Article 132 of the Constitution of India. I do not find any substantial question of law that is involved in the case. Hence, the oral request for permission to appeal to the Supreme Court is rejected. _________________ K.G.SHANKAR, J.
12-04-2013