SAFEMA Tribunal Quashes FEMA Penalties in Tamilnad Mercantile Bank Share Transfer Case

By CA Vijayakumar Shetty Fema / RBI Judiciary July 30, 2026

Case Name: Tamilnad Mercantile Bank Ltd. Vs Special Director (Appellate Tribunal Under SAFEMA Delhi)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Appellate Authority, SAFEMA

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Tamilnad Mercantile Bank Ltd. Vs Special Director (Appellate Tribunal Under SAFEMA Delhi)

SAFEMA Appellate Tribunal Quashes FEMA Penalties in Tamilnad Mercantile Bank Share Transfer Case, Holding RBI Approval and Subsequent Transactions Did Not Constitute Contraventions

The Appellate Tribunal under SAFEMA, New Delhi, decided a batch of appeals arising from penalties imposed by the Enforcement Directorate in connection with the transfer of shares of Tamilnad Mercantile Bank Ltd. (TMBL), the opening of escrow accounts, guarantees extended by Standard Chartered Bank, and foreign exchange transactions involving certain directors and officers. The ED had alleged violations of Sections 4, 6, 8 and 42 of FEMA and the relevant FEMA Regulations relating to transfer of shares to non-residents, deposits, guarantees, foreign currency accounts and repatriation of foreign exchange.

The Tribunal examined the long history of the TMB shareholding dispute, the RBI’s communications, Company Law Board proceedings, and the subsequent restructuring of shareholdings. It noted that the initial transfer of shares to non-resident investors was undertaken pursuant to RBI correspondence, and that subsequent transfers between non-resident entities were effected to comply with RBI’s directions to reduce aggregate shareholding below the prescribed threshold. The Tribunal also considered that the bank had approached RBI for compounding/regularisation and that such applications remained pending owing to the ED investigation.

After analysing the statutory provisions and the factual background, the Tribunal concluded that the alleged FEMA contraventions were not established in the manner alleged by the Enforcement Directorate. Consequently, it set aside the impugned adjudication order and the penalties imposed on Tamilnad Mercantile Bank, Standard Chartered Bank and the various directors, officers and other appellants, allowing the batch of appeals.

Cases Discussed

SEBI v. Shriram Mutual Fund (SC), (2006) 5 SCC 361
State of Punjab v. Bhatinda District Coop. Milk Producers Union Ltd. (SC), (2007) 11 SCC 363
Jewel touch (India) Pvt. Ltd. vs. Naheed Hafeez Quraishi & Ors. (Bombay HC), 2008 (3) Bom CR 217
Kanwar Natwar Singh vs. Directorate of Enforcement & Anr. (SC), (2010) 13 SCC 255
Shashank Manohar vs. Union of India (Bombay HC), 2014 (1) MHLJ 838
Government of India vs. Citadel Fine Pharmaceuticals (SC), 1989 (3) SCC 483
Canara Bank vs. Debasis Das (SC), (2003) 4 SCC 557
State Bank of Patiala vs. S.K. Sharma (SC), (1996) 3 SCC 364
Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors. (SC), MANU/SC/0300/1996
Charan Lal Sahu v. Union of India (SC), (1990) 1 SCC 613 : AIR 1990 SC 1480
Gadde Venkateswara Rao v. Govt. of A.P. (SC), AIR 1966 SC 828
Hindustan Steel Ltd. v. State of Orissa (SC), 1969 (2) SCC 627
Global Trust Bank vs. Kakateya Cements, 2000 (6) ALD 135
Shashank Vyankatesh Manohar vs. Union of India (Bombay HC), 2013 (5) ALL MR 551

FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

This Order disposes of the bunch of Appeals filed by the Appellants as delineated below, against the Order No. SDE/SRO/ CEZO/10/2020(SK) dated 14.08.2020 (Impugned Order), passed by the Special Director, Enforcement Directorate, Government of India, Chennai.

Appeal Number	Name of the Appellant with Designation	Notice e no. in the Imp. Order	Amount of Penalty (in Rs.)	Contravention and Regulations	Amount of extent (in Rs.)
FPA-FE- 83/CHN /2022	Tamilnad Mercantile Bank Ltd.	1	11,33,21,688/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000	113,32,16,884/-
FPA-FE- 83/CHN /2022	Tamilnad Mercantile Bank Ltd.	1	5,66,60,844/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000	160,71,41,094/-
FPA-FE- 92/CHN /2020	Shri M. G. M. Maran @ Nesamanima ran (Chairman of TMBL)	2	1,00,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 92/CHN /2020	Shri M. G. M. Maran @ Nesamanima ran (Chairman of TMBL)	2	35,00,00,000/-	Section 4 & 8 of FEMA, Regulation 3 & 4 of FEM (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of FEM (Foreign Currency Accounts by a person resident in India) Regulation 2000	28,08,50,000/-
FPA-FE- 39/CHN /2021	Shri G. Narayana Moorthy (Managing Director & CEO of TMBL)	3	50,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (1) of FEMA	113,32,16,884/-
FPA-FE- 99/CHN /2020	Shri R Kannan Adityan (Director of TMBL)	4	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 112/CH N/2020	Shri A. Rajagopalan (Director of TMBL)	5	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 106/CH N/2020	Shri V. Bhaskaran (Director of TMBL)	6	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 97/CHN 2020	Shri P. H. Arvind Pandian (Director of TMBL)	7	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 103/CH N/2020	Shri P. Prem Vetty (Director of TMBL)	8	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 100/CH N/2020	Shri A Narayanan (Director of TMBL)	9	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 102/CH N/2020	Shri N. Balasubrama nian (Director of TMBL)	10	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 98/CHN /2020	Shri A Selva Ghosh (Director of TMBL)	11	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 47/CHN /2021	Shri S. T. Kannan (RBI Nominee and Director of TMBL)	13	5,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 40/CHN /2021	Shri K. K. Sharma (Company Secretary of TMBL)	14	10,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	113,32,16,884/-
FPA-FE- 48/CHN /2021	Shri B. Prabaharan (Chairman of TMBL)	15	50,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	160,71,41,094/-
FPA-FE- 45/CHN /2021	Shri A. K. Jagannathan (MD & CEO of TMBL)	16	50,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (1) of FEMA	90,31,41,094/-
FPA-FE- 42/CHN /2021	Shri S. Sundar (Director of TMBL)	18	10,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	160,71,41,094/-
FPA-FE- 46/CHN /2021	Shri P. Yesuthasen (Director of TMBL) through LR	19	10,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	160,71,41,094/-
FPA-FE- 41/CHN /2021	Shri A. Shidabaranat han (Director of TMBL)	21	10,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	160,71,41,094/-
FPA-FE 49/CHN /2021	Shri K. N. Rajan (RBI Nominee and Director of TMBL)	22	10,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	160,71,41,094/-
FPA-FE 43/CHN /2021	Shri K.V. Rajan (RBI Nominee and Director of TMBL)	23	10,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	160,71,41,094/-
FPA-FE 44/CHN /2021	Shri Deepak C S (Company Secretary of TMBL)	24	10,00,000/-	Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA	70,40,00,000/
FPA-FE 96/CHN /2020	Standard Chartered Bank	25	34,00,00,000/-	Section 6 (3) (f) of FEMA, Regulation 3 of the FEM (Deposit) Regulations, 2000	113,32,16,884/-
FPA-FE 96/CHN /2020	Standard Chartered Bank	25	66,00,00,000/-	Section 6 (3) (j) of FEMA, Regulation 3 of the FEM (Guarantees) Regulations, 2000	221,00,00,000/
FPA-FE 95/CHN /2020	Shri Ranjan Ghosh (Head of Standard Chartered Bank)	26	20,00,000/-	Section 6 (3) (f) of FEMA, Regulation 3 of the FEM (Deposit) Regulations, 2000 in terms of Section 42 (1) of FEMA	113,32,16,884/-
FPA-FE 95/CHN /2020	Shri Ranjan Ghosh (Head of Standard Chartered Bank)	26	20,00,000/-	Section 6 (3) (j) of FEMA, Regulation 3 of the FEM (Guarantees) Regulations, 2000	221,00,00,000/-

2. Investigation was initiated by the Respondent Directorate on 11.10.2011 on the basis of the information forwarded by Reserve Bank of India (RBI) vide letter No. F.E.C.O. FID 21969/10 21047 (34) 2010-11 dated 16.03.2011. The aforementioned RBI letter pointed out that the actual flow of funds for transfer of shares of Tamilnad Mercantile Bank Ltd. (TMBL) from Sterling Group of Companies to various individuals/entities need to be investigated. For the said purpose RBI also forwarded a copy of Amended and Re-stated Escrow and Transaction Settlement Agreement dated 12.05.2007 entered into among certain entities in relation to transfer of TMBL shares and copies of certain other correspondence. Consequent to such investigation the Respondent Directorate issued the Show Cause Notice (SCN) on 17.12.2014 to 26 Noticees, of whom 23 have filed Appeals as mentioned afore. The SCN was issued on the basis of the Complaint which was filed on 16.12.2014 under Section 16 (3) of Foreign Exchange Management Act, 1999 (FEMA). The Impugned Order has disposed of the SCN in terms of passing an Order relating to four set of issues. The first set of issues arise from transfer of 46,862 shares of TMBL to seven foreign investors without prior approval of RBI for a total consideration of Rs. 113,32,16,884/-. Such transfer of shares has been penalized for contravention of Section 6 (3) (b) of FEMA read with Regulation 4 of the Foreign Exchange Management (FEM) (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000. While the Appeal filed by TMBL challenges the findings made in the Impugned Order against it on this set of issues, the Appeals filed by the Appellants labelled from Noticee No. 2 to Noticee No. 14 challenge the findings against each of the Noticee, who has been penalized for the aforementioned contraventions in terms of Section 42 of FEMA. The second set of issues has arisen from the fact that subsequent to the transfer of 46,862 shares of TMBL, 13,209 shares of TMBL were further transferred to M/s Sub-Continental Equities Ltd., Mauritius on 26.12.2011 for total consideration of Rs. 90,31,41,094/- and 14,080 shares of TMBL were further transferred to M/s Robert & Adris James Company Ltd., Mauritius for a total consideration of Rs. 70,40,00,000/-. Such transfer of shares has been penalized for contravention of Section 6 (3) (b) of FEMA read with Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000. While the Appeal filed by TMBL challenges the findings made in the Impugned Order against it on this second set of issues, the Appeals filed by the Appellants labelled from Noticee No. 15 to Noticee No. 24 challenge the findings against each of the Noticee, who have been penalized for the aforementioned contraventions in terms of Section 42 of FEMA. The third set of issues has arisen from opening an Escrow Account in the name of “SCB Project Windmill (Sale Consideration) Escrow Account” and another Escrow Account in the name of “SCB Project Windmill (Shares) Escrow Account” on 12.05.2007 and allowing deposit in the said Escrow account totaling Rs. 113,32,16,884/- from 7 foreign entities, towards transfer of shares of M/s Tamilnad Mercantile Bank, which were not permitted for transfer by the Reserve Bank, and keeping 1,12,151 shares of M/s Tamilnad Mercantile Bank in the “SCB Project Windmill (Shares) Escrow account”, without any permission of the RBI. The third set of issues also relate to taking into custody title deeds of over 62 acres of land owned by Shri Ramesh Vangal (Director of M/s. Katra Holding Pvt. Ltd.) and M/s. Arudrama Developments Pvt. Ltd. (a company in which Shri Ramesh Vanagal was one of the Directors) and taking custody of TMBL shares as collateral/guarantee, in lieu of which Standard Chartered Bank, Mauritius granted a loan of US$ 35.4 Million to three foreign entities viz., M/s GHI I Ltd., M/s Katra Holdings Limited, Mauritius, and M/s RST Limited and a further loan of US$ 20 Million to M/s. Katra Holdings Limited, Mauritius, thus totaling to US$ 55.4 Million, equivalent to Rs. 221,00,00,000/- (approximately), without any special permission from the RBI. The third set of issues have been penalized for the contraventions of Section 6 (3) (f) of FEMA read with Regulation 3 of the FEM (Deposit) Regulations, 2000 and contraventions of Section 6 (3) (j) of FEMA read with Regulation 3 of the FEM (Guarantees) Regulations, 2000. While the Appeal filed by the Standard Chartered Bank challenges the findings made in the Impugned Order against it on this third set of issues, the Appeal filed by the Appellant labelled as Noticee No. 26 challenges the findings against the Noticee, who has been penalized for the aforementioned contraventions in terms of Section 42 of FEMA. The fourth and last set of issues has arisen from the fact that Shri M. G. M. Maran, the then Chairman and Director of TMBL, a person resident in India, without the permission of Reserve Bank of India, opened an account vide No.7102356 with M/s ABN Amro Bank NV., Singapore Branch, Singapore in his name and received foreign exchange amounting to US$ 68,50,000 (equivalent to Rs. 28,08,50,000/-) in the said account from M/s Katra Holdings Limited, Port Louis, Mauritius, as consideration, for facilitating and assigning the rights towards transfer of shares of TMBL in favour of M/s Katra Holdings Limited, consequent to agreement dated 02.03.2006 with M/s Katra Holdings. He also failed to repatriate the same into India. For the aforementioned transactions penalty has been imposed on Shri Maran for the contravention of Sections 4 and 8 of FEMA read with Regulation 3 & 4 of FEM (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of FEM (Foreign Currency Accounts by a person resident in India) Regulation 2000. The Appeal filed by Shri M. G. M. Maran challenges not only the penalty imposed on him for the contraventions of FEMA in terms of Section 42 of FEMA for the first and second set of issues, but also the penalty imposed on him for the contraventions of FEMA arising out of fourth set of issues. It is pertinent to mention that the allegation of contravention of the provisions of Regulation 10.A (b) of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 has been dropped against the TMBL, as well as Chairman, Managing Directors, Directors and CEO, Company Secretary, who held such position at different points in time, since the allegations were found unsustainable in law. Same finding has been made of dropping the allegations for contravention of the provisions of Regulation 10.A (b) of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 with respect to Standard Chartered Bank and Shri Ranjan Ghosh.

3. The relevant provisions of law which have been invoked in the Impugned Order are enlisted below:

Section 6(3)(b), (f) and (j) of FEMA, read as under:

(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations, prohibit, restrict or regulate the following:

(b) transfer or issue of any security by a person resident outside India.

(f) deposits between persons resident in India and persons resident outside India.

(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred, –

i. by a person resident in India and owned to a person resident outside India; or

ii. by a person resident outside India

Regulation 4 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, reads as under:

4. Restriction on an Indian entity to issue security to a person resident outside India or to record a transfer of security from or to such person in its books: – Save as otherwise provided in the Act or Rules or Regulations made thereunder, an Indian entity shall not issue any security to a person resident outside India or shall not record in its books any transfer of security from or to such person.

Provided that the Reserve Bank may, on an application made to it and for sufficient reasons, permit an entity to issue any security to a person resident outside India or to record in its books transfer of security from or to such person, subject to such conditions as may be considered necessary.

Regulation 3 of the Foreign Exchange Management (Deposit) Regulations, 2000, restricts deposits between a person resident in India and person outside India and reads as under:

Restriction on deposits between a person resident in India and person resident outside India:- Save as otherwise provided in the Act or regulations or in rules, direction and orders made or issued under the Act, no person resident in India shall accept any deposit from, or make any deposit with, a person resident outside India:

Provided that the Reserve Bank may, on an application made to it and being satisfied that it is necessary so do to, allow a person resident in India to accept or make deposit from or with a person resident outside India.

The Foreign Exchange Management (Deposit) (Third Amendment) Regulations 2007 (Notification No. FEMA 162/2007-RB) dated 18.09.2007 permitted opening of Escrow Account and Special account for transfer of shares/convertible debentures of an Indian Company through open offer/delisting/exit offer in accordance with the provisions of SEBI (Substantial Acquisition of Shares and Takeovers (SAST)) Regulations, 1997 or any other applicable SEBI Regulations, without approval of Reserve Bank of India vide Regulation 5(2A) with effect from 24.05.2007 only.

Prior to the amendment vide Notification No.FEMA162/2007-RB dated 18.9.2007 and prior to 24.5.2007, Foreign Exchange Management (Deposit) Regulations 2000 “prior approval of the Reserve Bank is required for opening of Escrow Account and Special account for transfer of shares/convertible debentures of an Indian Company through open offer/delisting/exit offer in accordance with the provisions of SEBI (Substantial Acquisition of Shares and Takeovers (SAST)) Regulations, 1997 or any other applicable SEBI Regulations” as per A.P (DIR Series) Circular No.62 dated 24.5.2007, issued by the Reserve Bank of India.

Regulation 3 of The Foreign Exchange Management (Guarantees) Regulations, 2000 reads as under:

Prohibition: Save as otherwise provided in these regulations, or with the general or special permission of the Reserve Bank, no person resident in India shall give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the effect of guaranteeing, a debt, obligation or other liability incurred by, a person resident outside India.

Section 4 of FEMA, reads as under:

Holding of Foreign Exchange:- Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.

Section 8 of FEMA, reads as under:

Realisation and repatriation of foreign exchange:-Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realize and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank.

Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 reads as under:

Duty of Persons to realize foreign exchange due: A person resident in India to whom any foreign exchange is due or has accrued shall, save as otherwise provided under the provisions of the Act, or the rules and regulations made thereunder, or with the general or special permission of the Reserve Bank, take all reasonable steps to realize and repatriate to India such foreign exchange, and shall in no case do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing-

a) that the receipt by him of the whole or part of that foreign exchange is delayed; or

b) that the foreign exchange ceases in whole or in part to be receivable by him

Regulation 4 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 reads as under:

Manner of Repatriation:- (1) On realization of foreign exchange due, a person shall repatriate the same to India, namely bring into, or receive in, India and-

a) Sell it to an authorized person in India in exchange of Rupees; or

b) Retain or hold it in account with an authorized dealer in India to the extent specified by the Reserve Bank; or

c) Use it for discharge of a debt or liability denominated in foreign exchange to the extent and in the manner specified by the Reserve Bank

(2) A person shall be deemed to have repatriated the realized foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorized dealer.

Regulation 3 of The Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000 restricts and reads as under:-

Restriction on holding foreign currency account by a person resident in India:- Save as otherwise provided in the Act or rules or regulations made thereunder, no person resident in India shall open or hold or maintain a foreign currency account Provided further that the Reserve Bank, may on an application made to it, permit a person resident in India to hold or maintain a Foreign currency account, subject to such terms and conditions as may be considered necessary.

Arguments by the Appellants

4. Ld. Counsel for the Appellant TMBL submitted that the total paid up capital of the Appellant was Rs. 28,44,540/- divided into 2,84,454 equity shares of Rs.10/- each. It was formed for the purpose of fostering and developing economic resources of the Nadar community of Tamil Nadu and a large portion of the shares were predominantly held by the Nadar community till the year 1994. In the year 1994, certain shareholders of the Appellant entered into an agreement with seven companies (hereinafter referred to as “Essar Group”) for transfer of a total of 1,91,455 shares representing 67% of the paid-up capital of the Appellant. The Board of Directors refused consent to the transfer in a meeting dated 06.02.1995. Aggrieved, the transferees approached the Company Law Board (hereinafter referred to as “CLB”), seeking recognition of the transfer. In its order dated 04.05.1996, CLB directed the Appellant herein to register these Companies as Shareholders subject to acknowledgement by the RBI. The said transfer was not recorded in the books of the Appellant since RBI, on or about 14.10.1996 refused to acknowledge the said transfer in terms of the applicable guidelines citing close ties between the acquiring entities and a large industrial house. Ld. Counsel further submitted that in a timespan commencing from around December 1996 and culminating in 1998, certain other companies/ individuals representing an entity known as the Sterling Group acquired 6 of the 7 transferee companies of the Essar group with a view to gain control of the TMBL shares held by them. The remaining seventh entity, M/s Essar Investments sold the shares of Appellant Bank held by it to the Sterling Group.

5. Ld. Counsel for the Appellant TMBL stated that on refusal of RBI to grant acknowledgement to the acquisition of shares by the Sterling Group, the Board of Directors, in a meeting dated 27.07.1998, thought it fit not to permit the transfer and hence the transfer of shares was also not recorded in the books of the Appellant. The resulting impasse prevented the Appellant Bank from convening its Annual General Meetings. The Nadar Mahajana Bank Share Investor Forum, an activist investor body, with a view to resolve the stalemate, in conjunction with concerned members of the wider Nadar Community raised funds to repurchase shares from the Sterling Group. Despite myriad challenges, around 96,000 shares out of 1,91,455 shares were purchased by about 28,000 individuals from Sterling Group and this transfer was recorded in the books of the Appellant pursuant to the orders of the Hon’ble Company Law Board. The CLB, vide order dated 14.08.2003 directed the Appellant Bank to register the shares based on the list submitted to it by the above referenced investor Forum without production of the transfer deeds. As a consequence, 96,000 shares stood transferred to numerous retail investors from the companies in whose name the original transferees had effected transfers as per the list provided by the investor forum on multiple occasions. On 12.03.2004, 7 AGMs that couldn’t be held earlier were conducted en bloc and certain persons were duly authorized, inter alia, to cast votes pertaining to the remaining 95,418 shares. Erstwhile Directors of the Appellant Bank, Shri B. R. Adityan and Shri MGM Maran were entrusted by the Sterling Group to identify buyers for the shares held by it. Consequently, the erstwhile Directors, vide a communication dated 04.12.2006, wrote to the RBI regarding the proposed sale of the 95,418 shares in consonance with guidelines issued by the RBI and other applicable laws. The proposal envisaged transfer of 10% of the shares to domestic retail investors and a further 26.3 % shares was proposed to be sold to certain foreign investors, with each investor holding not more than 5% of the paid-up capital of the Appellant Bank. The erstwhile directors, as a matter of abundant caution, conveyed to the Apex Bank that they had reasons to believe that the prospective investors were not acting in concert and satisfied the ‘fit and proper’ criteria propounded by RBI under the rules and regulations and guidelines issued from time to time.

6. Ld. Counsel further stated that the RBI, assented to the proposal put forth by the erstwhile Directors of the Appellant Bank, qua the “FEMA angle”, vide a letter dated 30.03.2007. The aforesaid letter of the RBI dated 30.03.2007 accorded sanction to the proposed sale of 53,611 shares of Rs.10/- each in the Appellant Bank to certain Non-Resident Investors and Foreign Investors (FIs) at Rs. 24,182 per share. In a meeting convened on 13.05.2007, the Board of Appellant Bank deliberated the recording of transfer of the residual 95,418 shares including the transfer of 46,862 shares (16.47%) to seven individuals/ entities residing out of India and remaining shares (17.06%) to various resident investors. It has to be mentioned that 46,862 shares were recorded in the name of entities that were not overtly accorded sanction by the RBI. However, the afore-referenced entities were wholly owned by the very same persons in whose regard, the Apex Bank had granted no-objection letter dated 30.03.2007 pursuant to applications forwarded to RBI by the prospective buyers. The Board thereafter, accorded sanction to the registration of transfer of 46,862 shares. It is pertinent to note that the communication dated 30.03.2007 did not contain anything that can be construed as refusal of permission for transfer of shares in the name of wholly owned entities of the approved NRIs/FIs. Ld. Counsel contended that transferee Companies and the individuals/entities who obtained approval from RBI are one and the same. RBI gave no direction to cancel the transfer. Ld. Counsel for the Appellant TMBL pointed out that after a period of almost two years, RBI raised a query on 20.01.2009, regarding the transfer of shares, for which the Appellant submitted a reply dated 24.01.2009 explaining the circumstances in which the transfers had taken place. Further, RBI vide letter dated 13.07.2009, advised the Appellant to clarify as to why shares of the Appellant were transferred in the names of entities which are other than those indicated in the RBI permission letter.

8. Ld. Counsel for the Appellant TMBL further submitted that in the meanwhile, the transfer of shares to 18 parties, resident as well as nonresidents on 13.05.2007, was challenged in the Writ Petition No. 2684 of 2008, which was filed before the Hon’ble High Court of Bombay by Shri Kanakaraj, one of the shareholders of the Appellant. Incidentally, the said permission letter of RBI dated 30.03.2007 was also considered by the High Court. The said Writ Petition was disposed of by the High Court by an order dated 08.04.2009, with a direction to RBI to pass orders based on the representation made by the said Shri Kanakaraj with regard to the shareholdings of the various persons including the 7 non residents investors in the context of RBI guidelines on ‘acquisition of shares for gaining controlling interest in banks’. In pursuance of the said direction, the Executive Director of RBI passed an order dated 12.10.2009 holding that the entities (including the seven in issue here) as a group, directing the Appellant and others to seek RBI acknowledgment for the share transfers in pursuance of its circular dated 03.02.2004. Shri Kanakaraj once again approached the Hon’ble Bombay High Court on 13.05.2007 with Writ Petition No.2319/2009 praying for a direction to RBI to inter alia, issue instruction for setting aside the share transfers recorded in the books of the Appellant. The Hon’ble Bombay High Court, vide an order dated 14.10.2010 directed RBI to take appropriate decision in connection with the acknowledgment of holding of shares by the 18 entities identified by it as a group. In an order dated 31.03.2011, the Ld. Deputy Governor declined to acknowledge the holding of 5% or more of the paid-up capital of the Appellant by the group of 18 entities (including the 7 non-resident entities), in terms of the RBI guidelines dated February 3, 2004 which lays down the criteria for ‘fit & proper’ status of acquirers of shares of banks. The Deputy Governor directed that the aggregate holding of the 18 entities be brought below 5% of the paid-up capital of the Appellant Bank. However, nowhere in the order RBI had stated that the 7 foreign entities cannot hold the shares in their names. On the contrary, it had only directed that the total holding of the group of 18 persons named therein which includes the 7 foreign entities to be brought below 5%. In other words, the 7 entities alleged to have violated FEMA can continue to hold shares in each of their names.

9. Ld. Counsel for the Appellant TMBL submitted that in pursuance of the Order dated 31.03.2011 of the Deputy Governor, three entities holding 27,289 shares (out of the 46,862 shares) in the Appellant Bank transferred their holdings to two other entities, which were also incorporated outside India, and thus, qualifying as ‘persons’ resident outside India’ under Section 2(w) of FEMA. The Appellant recorded these transfers in its books on 26.12.2011 (acquisition of shares by M/s Subcontinental Equities Ltd from M/s RST Ltd. and M/s Katra Holdings Ltd.) and on 11.06.2012 (acquisition of shares by M/s Robert and Ardis James Company Ltd from M/s GHI I Ltd.). Pertinently, the aforementioned transfers were between persons not resident in India, no approval was required from the RBI by either the transferee or the transferor. It was contended that there was no other way in which the shareholding could have been brought down below 5% without divesting the stakes and therefore, this (the share transfers recorded on 26.12.2011 and 11.06.2012) was the only method of compliance with the Order of the RBI. A note was placed before the Board of Directors during the meeting of the Appellant Bank held on 26.12.2011 to consider the registration of the transfer of shares from Katra Holdings Limited and RST Limited to M/s. Sub-Continental Equities Limited. The Board passed a resolution in the said meeting approving the registration of the said transfer. The transfer of shares from GHI I Limited to Robert Ardis James Company Limited was also placed before the Board of Directors on 11.06.2012 and was approved. The finding of the Ld. AA is erroneous because it is only through the Impugned Order dated 14.08.2020 that the initial transfer has been held to be without approval. Ld. Counsel also contended that the applicability of Master Circular No. 15/2011-12 dated 01.07.2011 on foreign investment has been wrongly ruled out to this specific case in the Impugned Order.

10. Ld. Counsel for the Appellant stated that subsequently, upon receipt of a specific advise from the RBI vide its letter dated 05.09.2012 to apply for compounding, the Appellant Bank filed an application dated 18.09.2012 for compounding in connection with the recording the transfer of 46,862 shares in the Register of Members of the Appellant on 13.05.2007, which was returned by the Foreign Exchange Department of RBI for want of administrative compliance/ approvals and the Appellant was asked to apply to the Foreign Investment Division in Foreign Exchange Department of RBI for regularization of the share transfer. Later, the Foreign Investment Division wrote back to the Appellant stating that the application for regularization shall be kept in abeyance till the investigation by the Enforcement Directorate is completed. It may also be noted that the Appellant had subsequently filed two more applications for compounding of contraventions vide letters dated 29.08.2016 and 22.03.2017 which were also rejected citing the same abovementioned reasons. Upon receipt of the Impugned Order, the Appellant filed a compounding application before the RBI vide letter dated 12.10.2020. RBI, vide letter dated 27.01.2021, communicated to the Appellant that said Application cannot be considered as adjudication proceedings are concluded and the Impugned Order is passed.

11. Ld. Counsel for the Appellant TMBL challenged the Impugned Order on the grounds that the Show Cause Notice (SCN) issued on 17.12.2014 was with a delay of seven and a half years of the recording of the share transfer on 13.05.2007. Ld. Counsel stated that the delay has been attributed in the Impugned Order to complex nature of investigation and the necessity to issue second SCN with observation that no prejudice was caused due to such delay. Ld. Counsel maintained that in the absence of any period of limitation every authority should exercise power within a reasonable period. He relied upon the Judgment by the Hon’ble Supreme Court in the matter of Government of India vs. Citadel Fine Pharmaceuticals [1989 (3) SCC 483 Para 7 @ 487]. Ld. Counsel contended that in spite of the provisions of Section 16 (6) of FEMA the aforementioned SCN could only be disposed of on 14.08.2020, when in fact it should have been disposed of within one year of SCN. Ld. Counsel also relied upon the Judgment of the Hon’ble Bombay High Court in Shashank Manohar vs. Union of India [2014 (1) MHLJ 838 Para 12 @ page 230 and Para 21 @ page 233]. In this regard, he challenged the reliance by the Ld. AA on a Judgment of the Hon’ble Madras High Court overlooking the fact that the SLP against Shashank Manohar case was dismissed and the Judgment of the Hon’ble Supreme Court in Natwar Singh case was ignored. Ld. Counsel also challenged the Impugned Order on the ground of non-joinder of the transferor and the transferee in the said matter of the transfer of shares. Ld. Counsel also pleaded that since the Appellant never received any money on the transfer of shares, the contravention was not quantifiable. He pleaded that no penalty in such cases could be imposed. Ld. Counsel submitted that the Impugned Order has not taken into consideration that the compounding applications were not approved in spite of the Order of the Hon’ble Supreme Court in the Escorts case [1986 (1) SCC 264 (Para 63)]. Ld. Counsel also cited Hindustan Steel Ltd. v. State of Orissa [1969 (2) SCC 627] submitting that no penalty could have been imposed since at worst the contravention was technical in nature. Ld. Counsel therefore pleaded to allow the Appeal filed by TMBL.

12. Ld. Counsel for the Appellant Shri M. G. M. Maran submitted that insofar as the appellant is concerned, the findings as far as the first charge is concerned are recorded at para 6.15 and 6.16 of the Impugned Order. Insofar as the second charge is concerned, the findings of the Adjudicating Authority have been made at para 6.57 to 6.67 of the said Order. Ld. Counsel submitted that the inordinate and unexplained delay in conducting the adjudication proceedings itself is a vitiating factor which renders such proceedings non-est and unsustainable. The proceedings initiated pursuant to the Show Cause Notice are undoubtedly unreasonable and draconian in nature inasmuch as these result in imposition of penalty which has serious civil consequences. Therefore, it was incumbent on the Ld. AA to conduct the same with promptitude and alacrity. Not having done so, the entire proceedings culminating in the Impugned Order are unsustainable and requires to be set aside at the hands of this respected Appellate Tribunal. Ld. Counsel for the Appellant Shri M. G. M. Maran further submitted that it is obvious and apparent that the Complaint made by the Assistant Director of Enforcement, Bangalore is dated 16.12.2014. The Complaint was accompanied by documents of voluminous nature in more than three volumes running to thousands of pages. This Complaint was placed before the Ld. AA on 17.12.2014, who had taken cognizance of the same on the very same date, and issued the SCN on the same day as can be seen from the records. Therefore, it is the contention of the Appellant that the Ld. AA did not apply its judicial mind to the Complaint before signing on the SCN and issuing the same.

13. Ld. Counsel for the Appellant Shri M. G. M. Maran submitted that for reasons best known to the Investigators, such investigation centered only against the purchasers of the shares of M/s. TMBL and not against the sellers M/s. Sterling Group. Therefore, it is the contention of the Appellant that the investigation itself leading to the Complaint was lopsided and not complete. If that is so, the Complaint and the SCN suffer from factual and legal infirmity going to the root of the matter as the version set out therein is not complete and therefore vitiated. All the policy decisions relating to transfer of shares and other administrative matters were collectively taken by the Board of Directors with the help of the executive team. The post of part-time Non-Executive Chairman, which the Appellant held, was merely an ornamental post, more for keeping abreast of the Nadar Community to which the Appellant belongs. It is undisputed that the Appellant had taken over such position only a few days before the impugned transactions and did not have any role in the day-to-day affairs of M/s. TMBL. Whatever decision was taken by the Board qua the transfer of shares, was taken by it after getting due advice from the legal counsel as also the RBI nominated Directors who were in the Board. The Appellant had taken earnest steps along with Late Shri Ramachandra Adityan, Director of TMBL to work jointly with M/s. Katra Holdings Pvt. Ltd., Bangalore in restructuring the shareholding of TMBL. Such action was initiated in 2006 and in-principle permission was given by the RBI in 2007. The transfer itself was initially done by M/s. Sterling Group which held the shares and the Board of TMBL had only a recommendatory role in such transfer. Having regard to the aforesaid facts, the bona fides of the Appellant in the said transaction cannot be questioned and the Ld. AA has completely missed out on such a vital issue going to the root of the matter. It is undisputed that the shares to the extent of 10459 held by the Appellant and that of his late father to the extent of 2830 in TMBL were not divested by them at any point of time. If this is the position, the Ld. AA ought to have addressed itself qua the role of the Appellant in the aforesaid transaction leading to the first charge. Not having done so, the order of Ld. AA and findings thereon appears to be pretentious. Further, the application made to RBI as per approval dated 13.5.2007 states that the acquisition of shares will be made directly or through wholly owned subsidiaries and therefore in the absence of rejection at that point by RBI, the Appellant and the others charged had genuine and reasonable belief that the same was in compliance with Regulation 4. In such view of the matter, the Appellant submits that the findings recorded against the Appellant qua the first charge is unsustainable and requires to be set aside. The Appellant submits that the Company Secretary /Managing Director of TMBL had taken a decision to transfer the shares in the name of wholly owned subsidiaries instead of individual names which can at best be termed as a technical violation as the ownership continued to vest with the same persons to whom the shares had been transferred but in a slightly altered capacity. Inasmuch as the Appellant’s interaction with TMBL as only a part-time non-executive Chairman and limited to attending to Board meetings and he not being in charge or responsible for the conduct of the business of TMBL, cannot ipso facto make him liable for any alleged contravention of the FEMA or Regulations made thereunder invoking the provisions of Section 42. Further, rest of the Directors, who were in the same position as that of the Appellant, not taking any active part in the day to day running of the business of M/s TMBL, have been imposed a penalty of only Rs. 5.00 Lakhs or Rs. 10.00 Lakhs etc., whereas the Appellant who stands on the very same footing has been imposed a huge penalty of Rs. 1.00 Crore.

14. Ld. Counsel for the Appellant Shri M. G. M. Maran stated that there is not even an iota of material produced by the investigation to show that the Appellant is not a non-resident Indian. On the other hand, irrefutable material produced by the Appellant during the course of investigation and also during the course of the adjudication proceedings would show his non-residential status. This factum continues even today and therefore the Ld. AA is in error in ignoring the said vital fact. Ld. Counsel for the Appellant submitted that his non-resident status continues from October, 2006 at all material times and it continues even today. He is the Managing Director of a Company under the name and style ‘M/s. Magnum Global Pte. Ltd. Singapore. This evidence has not been discredited in any manner. These along with employment pass issued by the Government of Singapore are statutory documents which will establish the non-resident status of the Appellant at the relevant point of time. However, the Ld. AA has completely overlooked this and has not given due credence to the said material placed before it or the provisions of FEMA, but instead has proceeded with a predetermined state of mind to hold the Appellant to be a resident of India on wrong interpretation of relevant provisions. The interpretation given by the Ld. AA to Section 2(v)(i) (A)(a), is contrary to what the Section states. The said Section stipulates that if a person has gone out of India or stays outside India, in either case, (a) for taking employment outside India the person becomes a non-resident of India as per the provisions of FEMA. The said Section is clearly applicable to the Appellant. The findings of the Ld. AA to invent a new theory of number of days of stay abroad and taking into consideration the number of visits to India are all misconceived. At paragraph 6.65 the Ld. AA has referred to Annexures H, I, J and K filed with the written submissions. Further he has admitted that the first document produced is notarized copy of Employment Pass and copy of one page of the Passport bearing no F7265582. The next document is the Tax Return of Employees Remuneration for the year ended 31st December 2006 in which date of commencement of employment is mentioned as 5th October 2006 and also the Tax Assessment order issued by Comptroller of Income Tax, Singapore showing the Tax to be paid as S.$ 315 to be paid before 30.07.2007. The third document produced shows that M/s Magnum Global Pte. Ltd. was incorporated in Singapore on 23.02.2006. Fourth document is Tax Return of Employees Remuneration for the year ended 31.12.2007 showing the designation of Noticee No. 2 as Managing Director of Magnum Global Pte. Ltd. Assessment order dated 07.07.2008 of Comptroller of Income Tax, Singapore also was attached. Ld. AA has stated that the documents produced by Noticee No. 2 are in compliance with the provisions of Section 39 of FEMA, 1999, and has admitted them as evidence. Therefore, the Ld. AA should have halted his inquiry at that point and come to the conclusion that the Appellant is indeed a non-resident Indian. However, to the dismay of the Appellant the Ld. AA has travelled further and has rendered findings to the contrary on what could be termed as unsustainable understanding of the law which has fructified into the findings rendering it untenable in the eyes of law and on facts. The Ld. AA has observed that the Appellant was seen to have travelled abroad frequently and come back and resided in India for days ranging from 3 to 17 in a month, and he has entered India 22 times during the financial year 2006-07. Ld. Counsel contended that it is relevant to state here that the employment pass of Noticee 2 is dated 04.10.2006 and hence pre 04.10.2006 and post 04.10.2006 are to be seen separately. Having said the above, suffice to state that FEMA does not stipulate the number of visits a non-resident under FEMA can make to India and it cannot be left to the individual discretion of the Ld. AA. If such discretion is to be allowed, it may lead to an untenable position of considering (for example) even three visits as not acceptable. The fact remains that Noticee 2 was living out of India on employment and his visits to India were for finite periods and his stay outside was for an uncertain period. Sub-Section (a) of Section 2 (v) (i) (A) does not require Noticee 2 to demonstrate any of these. He therefore pleaded to allow the Appeal filed by Shri M. G. M. Maran.

15. Ld. Counsel for the Appellant Shri G. Narayana Moorthy, then Managing Director and CEO submitted that the Appellant was under bone fide belief that the recording of transfer of 46,862 shares was in order. Since, the entities in whose name the transfers were made, wholly owned by the individuals, the Appellant was under the bona fide belief that the recording of transfer of shares in the name of the entities was in order. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 113,32,16,884/-. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel also submitted that the penalty of Rs. 50,00,000/- imposed on the Appellant Shri G. Narayana Moorthy was disproportionate, even though he has also been the CEO of TMBL. He therefore pleaded to allow the Appeal filed by Shri G. Narayana Moorthy.

16. Ld. Counsel for the Appellants Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan submitted that penalty of Rs. 5,00,000/- on each the said Appellants has been imposed in the Impugned Order in spite of bringing to the notice of the Ld. AA that these Noticees (Appellants herein) were Non-Executive Independent Directors. In fact, Shri S. T. Kannan was the RBI Nominee Director. Ld. Counsel for the Appellants submitted that it has been alleged that a total of 46,862 equity shares of TMBL valued at Rs.113,32,16,884/- were transferred from certain resident shareholders to certain foreign investors on 13.05.2007 in a manner contrary to law. It is pertinent to mention that the RBI vide its letter dated 30.03.2017, granted approval for transfer of shares of TMBL to certain persons resident outside India. Ld. Counsel for the Appellants submitted that on 13.05.2007 a Board meeting was conducted in which the Board of Directors of TMBL approved the shares transfers on the basis of a Board Note that was presented to the Directors. The Board Note and the briefing to the Board portrayed a picture that what were being approved were in consonance with RBI approval and that transfer would be carried out in the same manner. On this basis, the Board of Directors, including the Independent Directors on the Board, had voted to approve the resolutions for registration of such transfer. However, while effecting the transfers, the Management/ Company Secretary of TMBL had transferred the shares to overseas companies/entities which were owned by the persons in whose name the RBI approval was granted. Ld. Counsel for the Appellants submitted that at the time when the Board meeting dated 13.05.2007 was held, a Non-Executive Independent Director would be appointed in accordance with the requirements under the provisions of the Banking Regulation Act. The Appellants ceased to be Directors after completing the stipulated tenure and to that extent various events referred in the SCN, after such dates, the Appellants herein had no connection at all. The Appellants were Non- Executive Independent Director, and at no point of time, were in charge of or responsible for the conduct of the business of TMBL. The Appellants interactions with TMBL were limited only to attending the Board meetings of TMBL and discussing various matters therein.

17. Ld. Counsel for the Appellants Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan submitted that in the Board meeting dated 13.05.2007, the Appellants had voted in favour of the resolutions for registration of transfers of shares in TMBL on the basis of the representation made by the Management of TMBL and the Board Note prepared. The Appellants acted in good faith and under the firm belief that the transfers were being done only to those names which were approved by the RBI, with no change therein. The Appellants had no role to play in the actual transfer of shares after its approval by the Board. It is pertinent to mention that almost after seven years of the said Board meeting and six years after the Appellants had ceased to be members of the Board of Directors of TMBL, the Special Director, of the Respondent Department had issued SCN. The said SCN did not state anything as regards any specific role of the Appellants, apart from the fact that the Appellants were the Directors on Board of the TMBL at the relevant point of time. Ld. Counsel for the Appellants submitted that it is evident from the relied upon documents supplied before the Ld. AA that the details of the registration of transfer of shares was communicated by the TMBL to the Chief General Manager, Department of Banking Operations & Development, RBI immediately after the transfer, by a letter dated 15.05.2007.

18. Ld. Counsel for the Appellants Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan submitted that Section 42 of FEMA is a special provision in case of contraventions by Companies. As per Section 42 (1) if there is a contravention by a Company, then, every person who 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. As per Section 42 (2) if there has been a contravention by a Company and if it has been proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of any Director, Secretary, then, such Director/Secretary shall also be deemed guilty of the contravention. Hence, Section 42(2) imposes an additional burden of proof on the Complainant, i.e., he must clearly establish the role of a person either by their consent or by their connivance or by their neglect. For the reasons stated herein, the entire approach of the Ld. AA in invoking Section 42(2) against the Appellant herein is perverse. Ld. Counsel for the Appellants submitted that the TMBL is a Bank which is governed under the Banking Regulation Act, 1949. The SCN has failed to note that the Directors are appointed under the provisions of Section 10A of the Banking Regulation Act, 1949. The primary points to be noted in this regard is that Section 10A is a mandatory provision of law which overrides all other laws and the Directors are appointed by the RBI based on certain fields of expertise / experience. Hence, the role of such Directors is to fulfill the statutory obligation cast under the provisions of Section 10A and such Directors cannot, by any stretch of imagination, be held to be Directors who are liable under Section 42 of FEMA, since such Directors are purely Non-Executive Directors who have no role to play in the business or operations of the Bank and have limited access to the books & records of the Company. The objective of Section 10A of the Banking Regulation Act, 1949 is only to ensure that a bank is able to benefit from the expertise of its Directors in various fields which will be available to them in the Board proceedings. The objective is to broaden the base of the Board of a Bank with persons across varied fields such as agriculture, industry, small sector etc., so that they are able to add value to the Board proceedings. This is the rationale behind the appointment of independent directors on the Boards of Banks. It is hence submitted that when the Directors have been appointed with this objective, it is not possible to extrapolate their role to making them liable for ascertaining whether a transfer of shares in the bank has been recorded in the books as per the approval accorded by RBI. Since the provisions of Section 10A of the Banking Regulation Act also have an overriding effect, it is submitted that no liability can be sought to be imposed on the independent Directors appointed under the provisions of Section 10A of the Banking Regulation Act, for any violation alleged to have been committed by the Bank. Ld. Counsel therefore pleaded to allow the Appeals filed by Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan.

19. Ld. Counsel for the Appellant Shri K K Sharma submitted that the Appellant was under bone fide belief that the recording of transfer of 46,862 shares valued at Rs.113,32,16,884/- was in order. Since, the entities in whose name the transfer of shares were made, were wholly owned by the individuals, the Appellant was under the bona fide belief that the recording of transfer of shares in the name of the entities was in order. It is to be appreciated that the shares were transferred to the aforesaid persons although not directly but through their wholly owned entities. Ld. Counsel emphasized that the Appellant did not give any recommendation and approval in his capacity as Company Secretary. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 113,32,16,884/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 (2) of FEMA is not applicable to the contravention of Regulation. Ld. Counsel also submitted that the penalty of Rs. 10,00,000/-imposed on the Appellant Shri K K Sharma was disproportionate, even though he was Company Secretary of TMBL. He therefore pleaded to allow the Appeal filed by Shri K K Sharma.

20. Ld. Counsel for the Appellant Shri B Prabaharan, then Chairman of TMBL, stated that the Appellant had joined the TMBL in the year 2009 and therefore was not part of the Board when transfer of 46,862 shares were approved by the Board on 13.05.2007. Ld. Counsel pleaded that the recording of transfer of 27,289 shares between the persons resident outside India on 26.12.2011 and 11.06.2012 did not require permission from the RBI, in view of Regulation 9 (2)(i) of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, whereby for transfer of shares from persons resident outside India to another person resident outside India is permitted. Ld. Counsel further submitted that the said transfers were occasioned by the order dated 31.03.2011 of the Ld. Deputy Governor of RBI refusing to acknowledge the holding of 5% or more shares by the ‘Group’ and directing that the aggregate shareholding of the ‘Group’ be brought below 5% of the TMBL paid-up capital. Ld. Counsel for the Appellant submitted that a legal opinion given to Sub-continental Equities Limited by an advocate which was circulated to all the Directors during the Board Meeting for transfer of shares on 26.12.2011 wherein, it was opined that FEMA did not prohibit a person not resident in India to freely transfer the shares held by such person in an Indian Company engaged in the financial sector. Therefore, it was opined that transfer of shares between the two non-residents is in compliance with FEMA and the rules and regulations framed thereunder. It was also provided in the said opinion that as the RBI Order had directed that shareholding held by the Group be divested to less than 5% of the paid-up equity share capital of the Company, therefore the registration by Noticee-1 of the transfer of Shares in favour of the non-resident would also be in consonance with the RBI Order. Ld. Counsel submitted that the Appellant does not have a legal background and therefore assented to the recording of the shares for the second transfer based on the aforementioned legal opinion. Therefore, it is further submitted that the Appellant did not act negligently and was under bona-fide belief that the transfer of shares was in compliance with rules, regulations, directions of FEMA. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 160,71,41,094/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Ld. Counsel pleaded that penalty amount is unreasonable. Ld. Counsel therefore pleaded to allow the Appeal filed by Shri B Prabaharan.

21. Ld. Counsel for the Appellant Shri A K Jagannathan, then Managing Director and CEO of TMBL, submitted that the Appellant with strong banking background, had joined TMBL on 23.09.2010 and had left the services of the TMBL on 12.05.2012. He therefore was not part of the Board when transfer of 46,862 shares were approved by the Board on 13.05.2007. Ld. Counsel pleaded that the recording of transfer of 27,289 shares between the persons resident outside India on 26.12.2011 and on 11.06.2012 did not require permission from the RBI, in view of Regulation 9 (2)(i) of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, whereby for transfer of shares from persons resident outside India to another person resident outside India is permitted. Ld. Counsel further submitted that the said transfers were occasioned by the order dated 31.03.2011 of the Ld. Deputy Governor of RBI refusing to acknowledge the holding of 5% or more shares by the ‘Group’ and directing that the aggregate shareholding of the ‘Group’ be brought below 5% of the TMBL paid-up capital. Ld. Counsel for the Appellant submitted that a legal opinion given to Sub-continental Equities Limited by an advocate which was circulated to all the Directors during the Board Meeting for transfer of shares on 26.12.2011 wherein, it was opined that FEMA did not prohibit a person not resident in India to freely transfer the shares held by such person in an Indian Company engaged in the financial sector. Therefore, it was opined that transfer of shares between the two non-residents is in compliance with FEMA and the rules and regulations framed thereunder. It was also provided in the said opinion that as the RBI Order had directed that shareholding held by the Group be divested to less than 5% of the paid-up equity share capital of the Company, therefore the registration by Noticee-1 of the transfer of Shares in favour of the non-resident would also be in consonance with the RBI Order. Ld. Counsel submitted that the Appellant does not have a legal background and therefore assented to the recording of the shares for the second transfer based on the aforementioned legal opinion. Therefore, it is further submitted that the Appellant did not act negligently and was under bona-fide belief that the transfer of shares was in compliance with rules, regulations, directions of FEMA. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 90,31,41,094/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Ld. Counsel pleaded that penalty amount is unreasonable. Ld. Counsel contended that Appellant had abstained from the meeting held on 26.12.2011 for recording transfer of 13,029 shares from M/s Katra Holdings Ltd. and RST Ltd. to M/s Sub-Continental Equities Ltd. Moreover, he had already left the TMBL before the next meeting held on 11.06.2012. No consideration in the imposition of penalty has been made. Ld. Counsel therefore pleaded to allow the Appeal filed by Shri A K Jagannathan.

22. Ld. Counsel for the Appellants Shri S. Sundar (Director of TMBL), Shri P. Yesuthasen (Director of TMBL), Shri A. Shidabaranathan (Director of TMBL), Shri K. N. Rajan (RBI Nominee and Director of TMBL) and Shri K V Rajan, (RBI Nominee and Director of TMBL) contended that all of them had joined TMBL after the approval of transfer of 46,862 shares on 13.05.2007. The Appellants were only associated with approving the recording of subsequent transfer of 27,289 shares on 26.12.2011 and 11.06.2012. Ld. Counsel pleaded that the recording of transfer of 27,289 shares between the persons resident outside India on 26.12.2011 and 11.06.2012 did not require permission from the RBI, in view of Regulation 9 (2)(i) of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, whereby for transfer of shares from persons resident outside India to another person resident outside India is permitted. Ld. Counsel further submitted that the said transfers were occasioned by the order dated 31.03.2011 of the Ld. Deputy Governor of RBI refusing to acknowledge the holding of 5% or more shares by the ‘Group’ and directing that the aggregate shareholding of the ‘Group’ be brought below 5% of the TMBL paid-up capital. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 160,71,41,094/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Ld. Counsels therefore pleaded to allow the Appeals filed by Shri S. Sundar, Shri P. Yesuthasen, Shri A. Shidabaranathan, Shri K. N. Rajan and Shri K V Rajan.

23. Ld. Counsel for the Appellant Shri Deepak C S, then Company Secretary of TMBL, submitted that he joined the services of TMBL on 25.1.2012 and he was not connected with the transfer of 13209 shares approved by the Board of Directors of TMBL on 26.11.2011. Ld. Counsel submitted that the role of the Appellant as the Secretary was to merely apprise the Board and place the detailed facts relevant for its decision making. He had exercised due diligence in performing his role and that the SCN did not allege any violation in performance of his role as Secretary. Ld. Counsel pleaded that no allegation can be levelled on him merely because he served as a Company Secretary during the period. He was not involved in any decision-making process in the Board and he did not have a right to vote. He cannot be brought within the ambit of Section 42 of FEMA and held guilty of the contravention, as he was not a party to decision making process. Ld. Counsel further submitted that the amount of contravention was not quantifiable since the TMBL did not receive any money and the penalty has been imposed on the basis of the underlying value of shares amounting to Rs. 70,40,00,000/-. Moreover, the adjudication proceedings were initiated after lapse of time which was unreasonable. Ld. Counsel pleaded that Section 42 of FEMA is not applicable to the contravention of Regulation. Ld. Counsel pleaded that penalty amount is unreasonable. Ld. Counsel therefore pleaded to allow the Appeal filed by Shri Deepak C S.

24. Ld. Counsel for the Appellant Standard Chartered Bank (SCB) submitted that the Foreign Exchange Department of the RBI had issued a no objection certificate for the transaction on 30.03.2007. In order to complete the transaction, what was required to be done by SCB Mauritius was to set up an escrow arrangement in which monies would be deposited by the buyers, shares would be deposited by the sellers, and then the money would be released upon the transfer of the shares. Since the monies were payable to sellers in India and the shares were in India, SCB Mauritius used the facility of its Indian associate, the Appellant, as a sub-agent, to physically open an account for the remittance of the funds for the transaction. The Appellant did not act as an escrow agent. The Impugned Order relies on certain exchanges between different persons, taken out of context. However, it overlooks the fundamental legal proposition that in order to act as an escrow agent there has to be a privity of contract between the persons for whose benefit the arrangement is being put in place and the escrow agent. Admittedly, these arrangements were in place with SCB Mauritius, and the arrangers for the buyers and the sellers. Admittedly, there was no such arrangement between the Appellant and any party who were either the sellers/owners of shares or the buyer of shares or arrangers to the transaction. The Appellant opened an account in India which account should be construed as a current account. It is submitted that the fact that it was for convenience labelled as an escrow account, but it did not make the Appellant an escrow agent in law, for the Appellant owed no duties as an escrow agent to either the buyer or the sellers. SCB Mauritius informed the sellers that the shares had been transferred. However, since the instructions were to transfer the shares to the entities controlled by them, the Appellant informed TMBL to transfer the shares to the named entities. The Ld. Adjudicating Authority ought to have appreciated that the Appellant, as the sub-agent of SCB Mauritius, was required to act on the instructions of the latter. SCB Mauritius, in turn, was required to facilitate the transfer of TMBL shares to the final purchasing entities identified by Corsair under the escrow arrangement. It must be emphasized that the escrow arrangement was distinct and separate from the loan facilities provided by SCB Mauritius to GHI I Limited and RST Limited. On this basis an absurd conclusion has been drawn in the Impugned Order that the Appellant was acting on its own and not as a sub agent. Once this finding is displaced, the edifice of the order collapses.

25. Ld. Counsel for the Appellant SCB submitted that the evidence conclusively establishes (a) that no security of immovable property was ever taken by way of mortgage of land as held by the Ld. Adjudicating Authority in the Impugned Order, or of the TMBL shares which are claimed to have been pledged to the Appellant and (b) that even assuming, whilst categorically denying that there was any security taken as alleged in these respects, even then, the neither the Guarantee Regulations were attracted nor RBI approval was required. The Ld. Adjudicating Authority erred in holding that certain shares of TMBL that were deposited with the Appellant, constituted collateral/ guarantee for the loans advanced by SCB, Mauritius to M/s GHI I Ltd. and M/s RST Ltd. The Ld. Adjudicating Authority ought to have appreciated that the banking finance letters dated 09.05.2007 contained no such provision for any collateral/guarantee/ security. The Ld. Adjudicating Authority erred in placing reliance on irrelevant and unrelated language in para 3.1(b)(i) of the said banking facility letters, under the heading of Customer Representations and Warranties and Covenants, to arrive at its finding in this regard. Para 3.1(b)(i) of the banking facility letters stated that the borrower shall not, pending the full repayment of the respective facilities, enter into a scheme of amalgamation, merger, expansion, compromise or reconstruction or sell, lease, transfer (grant any option to do the same) all or substantial portion of its fixed assets and other assets without prior written notice to SCB Mauritius. The Ld. Adjudicating Authority ought to have appreciated that the language in this provision of the banking facility letters was a general negative covenant and in no way constituted a “guarantee” of any kind.

26. Ld. Counsel for the Appellant SCB stated that insofar as the purported contraventions of the Deposit Regulations are concerned, the same is premised on the footing that the Appellant had allegedly opened “Escrow Accounts” and had deposited into the said “Escrow Accounts” certain monies and shares without the approval of the RBI. In this connection, it is respectfully submitted that the Impugned Order has proceeded on a misconceived notion of the nature of an “Escrow Account”. In doing so, the Ld. Adjudicating Authority has purported to place undue reliance on the nomenclature of the said accounts instead of appreciating the nature of the said accounts. The Ld. Adjudicating Authority also failed to consider that the Appellant was neither the escrow agent nor a party to the escrow agreement and was acting only upon the instructions of SCB Mauritius for the accounts held in India as a sub-agent to SCB Mauritius. In this connection, it is also pertinent to note that insofar as the deposit of monies were concerned, the same were deposited into the alleged ‘Escrow Account’ and were transferred out, on the same date i.e. on 14.05.2007. There were no operations in the said account either prior or subsequent thereto. The said account should be construed as a regular INR current account which did not require obtaining approval of RBI under the Deposit Regulations. It is clear that the “deposit” under the Deposit Regulations contemplates a deposit of money, and that therefore, the “opening” of the Share Account and “keeping” of 1,12,151 shares of TMBL therein by the Appellant does not constitute a “deposit” under the said Regulations. The Ld. AA ought to have appreciated that the Deposit Regulations are not applicable against the Appellant in relation to the Share Account. Even assuming, whilst categorically denying, that there was any alleged technical contravention, the same can only be considered as venial in nature and even therefore did not warrant the imposition of any penalty, let alone the exorbitant penalty levied by the Ld. Adjudicating Authority.

27. Ld. Counsel for the Appellant SCB contended that although the Complaint on the basis of which the SCN was issued, was lodged as far back as 16.12.2014 and cognizance taken of it by issuance of the SCN dated 17.12.2014, the first notice for hearing in the matter was issued almost 5 years after the issuance of the SCN, i.e., on 02.08.2019. The Ld. Adjudicating Authority ought to have appreciated that the periodic recording of the reasons for delay, though mandatory, was not complied with. Further, the Ld. Adjudicating Authority has disregarded this submission and summarily brushed aside the same without any rationale in the Impugned Order. The Ld. Adjudicating Authority erred in purporting to justify the delay by holding that subsequent to the issuance of the SCN, further investigations were allegedly carried out, which resulted in the issuance of the Second Show Cause Notice on 09.11.2017. The Ld. Adjudicating Authority ought to have appreciated that the said purported justification was specious, because no new facts were disclosed in the Second SCN against the Appellant, and the delay was therefore ex-facie unwarranted. The Ld. Adjudicating Authority failed to appreciate that the issuance of the SCN was vitiated by non-application of mind, since the SCN was issued only a day after the complaint dated 16.12.2014, on which the SCN was purportedly based, despite the Complaint itself being very voluminous, with over 50 Annexures, running into 2 volumes and issued to 26 separate Noticees. Moreover, the Ld. AA failed to appreciate that the SCN stood vitiated by reason of the ED having prejudged the guilt of the Noticees. The Ld. Adjudicating Authority has also failed to comply with the mandatory provisions of Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 which postulate that the charges as framed be explained to the Noticee at the outset of the hearing. The Ld. Adjudicating Authority ought to have disclosed the reasons for arriving at a prima facie view of the Appellant having contravened the provisions of FEMA in terms of the Complaint lodged before him. The Ld. Adjudicating Authority ought to have explained to the Appellant the essence of the charges levied against the Appellant and not merely the construct thereof.

28. Ld. Counsel for the Appellant SCB submitted that the Ld. Adjudicating Authority erred in holding that the Appellant contravened the provisions of the Guarantee Regulations by taking custody of (i) title deeds of over 62 acres of land owned by Ramesh Vangal (a director of Katra India) and Arudrama Developments Pvt. Ltd. (a company in which Ramesh Vangal is one of the directors), and (ii) certain shares of TMBL, and to have done so allegedly as security for the repayment of the loan advanced by SCB Mauritius to Katra Holdings Pvt. Ltd. The Ld. AA ought to have appreciated that, even though the Banking Finance Letter dated 29.12.2006 issued by SCB Mauritius to Katra provided for the “deposit of physical shares and blank transfer deeds of TMB representing 40% of the paid up capital of the Bank” under the heading “Security” for the loan of USD 20,000,000 (USD Twenty million), any shares that were deposited by Katra in the Share Account were deposited (i) for onward transfer to the relevant purchasers, (ii) as a condition of drawdown of the loan of USD 20,000,000 (USD Twenty million), (iii) in order to demonstrate that the transactions would proceed and that Katra would receive its “Arranger’s commission”, inter alia, through which the loans to Katra would be repaid. The Ld. AA ought to have appreciated that this did not give SCB Mauritius any security interest in the said shares of TMBL. The Ld. AA ought to have appreciated that although Katra defaulted on the said loan, SCB Mauritius did not ever liquidate the shares of TMBL held in the Share Account for the recovery of its loan. The Ld. AA failed to appreciate that the treatment of the TMBL shares in the Banking Finance Letter dated 29.12.2006 was in contrast with the treatment, in the same banking finance letter, of the shares of one Scandent Holding Mauritius Limited (“Scandent”), which in fact were pledged by a non-resident (Katra) to another non-resident (SCB Mauritius) for a loan taken by Katra from SCB Mauritius. The Ld. AA ought to have appreciated that the Letter specifies the “Pledge over of 28.7% of shares of Scandent Holding Mauritius Ltd (SHML) held by Ramesh Vangal and Katra Finance Ltd (Mauritius) together in Scandent Holding Mauritius Ltd.”. The absence of the word “pledge” in relation to the shares of TMBL, as compared to the shares of Scandent, clearly established that only the shares of Scandent and not the shares of TMBL were pledged as a security for the loan advanced by SCB Mauritius to Katra. The Ld. Adjudicating Authority ought to have appreciated that no agreement for any pledge or other security over any TMBL shares in respect of the loan granted by and under this banking facility letter was entered into. The Ld. AA failed to appreciate that it is therefore only the issuer of a guarantee who can be charged with violation/contravention of the said Regulation, since the Regulation prescribes the giving of a guarantee, but does not deal with the recipient thereof. In the present case, therefore, it is the resident issuer of the alleged guarantee, i.e., Shri Ramesh Vangal and Arudrama Developers Private Limited, who could have been charged with the violation, if any, of this Regulation, and not the Appellant. The Undertaking-cum-Power of Attorney expressly envisages that prior RBI permission would have to be obtained before any such security interest were created, thus ensuring that the relevant provisions of FEMA would have been complied with in the event SCB Mauritius wished to create a mortgage over the land. Significantly, this submission of the Appellant, though noted in para 6.39 of the Impugned Order, has not been dealt with by the Ld. AA in the Impugned Order. The Ld. AA ought to have appreciated that even though Katra defaulted on the loan to SCB Mauritius, neither the Appellant nor SCB Mauritius enforced the alleged mortgage as security for the repayment of the loan. The Ld. AA erred in holding that the three ingredients for creation of mortgage by deposit of title deeds, i.e., debt, deposit, and intention to create security for the debt, had been satisfied in the present case. Even otherwise, the Ld. AA failed to appreciate that the Appellant was at the highest, the agent for SCB Mauritius. The Ld. AA ought to have appreciated that an agent cannot be held vicariously liable for the acts of its principal. Even assuming that the Ld. AA was correct in its finding that the above amounted to provision of a guarantee for which the Appellant is liable, the Ld. Adjudicating Authority has clearly erred in calculating the amount involved in the alleged contravention to be USD 55,400,000 (USD Fifty Five Million Four Hundred Thousand), instead of the aggregate of the loans advanced by SCB Mauritius to Katra i.e. USD 33,600,000 (USD Thirty Three Million Six Hundred Thousand).

29. Ld. Counsel for the Appellant SCB submitted that the Ld. AA failed to recognize the Appellant submission that the INR Account, though titled as an “Escrow Account”, should be construed as a current account, which can be opened by “any person resident outside India”, and for the opening and operation of which no prior permission of the RBI is required. The Ld. AA failed to appreciate that an escrow arrangement necessarily contemplates a tripartite agreement between a promisor, a promisee and a third party called an escrow agent. Such a third party is not an ‘agent’ stricto sensu as neither the promisor nor the promisee is his principal. The third party “escrow agent” will hold certain property, documents or money pending fulfilment of certain conditions agreed between the promisor and the promisee. The escrow agent is required to independently satisfy itself as to whether or not the said conditions are fulfilled. Upon the fulfilment of such conditions as per the terms of the escrow arrangement, to the independent satisfaction of the escrow agent, the escrow agent will hand over the property, documents or money, entrusted to the escrow agent by the promisor, to the promisee. Where the conditions are not fulfilled, to the independent satisfaction of the escrow agent, the escrow agent would return the property, documents or money to the promisor. Therefore, an escrow would entail an independent assessment and satisfaction of the escrow agent, of the conditions set out in the escrow arrangement. In this connection, the Ld. AA failed to appreciate the observations recorded in the judgments of Jewel touch (India) Pvt. Ltd. vs. Naheed Hafeez Quraishi & Ors. [2008 (3) Bom CR 217, paras 14 to 16] and Global Trust Bank vs. Kakateya Cements [2000 (6) ALD 135, paras 15 to 17]. The Courts in these judgments have reiterated that a property in escrow is a property held by an escrow agent to be turned over upon fulfillment of some condition or promise. The Ld. Adjudicating Authority failed to appreciate that in the instant case, the transaction contemplated under the Escrow Agreement involved three main parties Corsair (the arranger for buyers), Katra (the arranger for sellers) and SCB Mauritius (the escrow agent). In this connection, the Ld. Adjudicating Authority ought to have appreciated that the Appellant did not have or exercise any discretion that is available to an escrow agent under an escrow agreement. In fact, the Appellant was not even a party to the Escrow Agreement. The Ld. AA failed to appreciate that the sale consideration paid by the FIs for purchase of TMBL shares was deposited into the escrow account (USD Account) maintained with SCB Mauritius. It was from this escrow account that SCB Mauritius, as the escrow agent, effected a remittance of the sale consideration to the INR Account maintained with the Appellant, for payment to the respective sellers. All remittances were made following instructions from SCB Mauritius for disbursement of the proceeds to the respective sellers of the shares. These instructions were received by “SWIFT” messages issued by SCB Mauritius containing account details and amounts to be remitted to the relevant seller. In carrying out the instructions, the Appellant merely acted on the instructions of the holder of the INR Account viz. SCB Mauritius. The Ld. AA erred in basing its conclusions that the Appellant was the escrow agent on the fact that a letter was addressed by the Appellant to TMBL on 12.05.2007, requesting the latter to transfer shares to the seven foreign entities whose names were not approved by the RBI vide its letter dated 30.03.2007, while on the same day, a letter was addressed by SCB Mauritius to the transferors of the TMBL Shares, to confirm the sale of the shares to the foreign investors whose names were approved by RBI. The Ld. AA ought to have appreciated that the Appellant wrote to TMBL as a custodian for the FIs and SCB Mauritius wrote to the transferors in its capacity as an escrow agent. The Ld. AA ought to have consequently appreciated the two different roles played by the Appellant and SCB Mauritius. Even if the Ld. AA found contraventions these were merely technical violations of FEMA or the Regulations framed thereunder, and hence, it should have either desisted from imposing any penalty or in the alternative, levied only a nominal penalty, given the venial nature of the alleged contraventions. The Ld. AA has imposed penalties constituting a maximum of 8% and a minimum of less than 1% of the amount involved in the alleged contraventions, on TMBL and its directors. In comparison, the penalty levied on the Appellant for allegedly contravening Section 6(3)(b) of FEMA read with Regulation 3 of the Deposit Regulations, and Section 6(3)(f) of FEMA read with Regulation 3 of the Guarantee Regulations, is 30% of the amounts allegedly involved in the alleged contraventions. No reasoning or justification has been provided by the Ld. AA for levying the above-mentioned staggering and onerous penalties on the Appellant. Ld. Counsel for the Appellant SCB submitted that the Respondent Directorate has cited RBI Circular dated 24.05.2007 which is not applicable to the facts of the present case. Ld. Counsel also contended that the Respondent Directorate itself has passed the Impugned Order which is against law, weight of evidence and probability of the case. Ld. Counsel therefore pleaded to allow the Appeal filed by Standard Chartered Bank.

30. Ld. Counsel for the Appellant Shri Ranjan Ghosh submitted that the Ld. AA has held SCB to be guilty of the alleged contraventions based on an incorrect appreciation of both facts and law, surmises and conjectures and a selective reading of the express evidence on record. Without prejudice to the above, there is no allegation against the Appellant of any act or omission by him which violated any provision of FEMA or Regulations issued thereunder. He is sought to be roped in only on account of alleged vicarious liability under Section 42 (1) of FEMA. The burden of specifying how and in what manner the Appellant was in charge of and responsible to the Company for the business of the Company, or responsible for the alleged contraventions, has not been discharged by the Directorate of Enforcement in the SCN. The Ld. AA also failed to appreciate that the SCN did not disclose the basis on which the Appellant had been arrayed as a party thereto, apart from a mere mechanical citing/ reproduction of Section 42 of FEMA. No details as to how and in what manner the Appellant was responsible for the alleged contraventions were set out in the SCN.

31. Ld. Counsel for the Appellant Shri Ranjan Ghosh further submitted that has also been recorded in the Impugned Order, the Appellant was, at the relevant time, the Head of Financial Institutions Group of SCB (a sub-division of the Origination and Client Coverage unit of SCB). The role of Financial Institutions Group was primarily client relations with financial institution clients in India/South Asia, sourcing of banking business from them, and preparing credit proposals. The Appellant therefore had no authoritative / directive role to play in the sanctioning or execution of the transactions which are the subject matter of the SCN. The Appellant was not responsible for the sanctioning or execution of loans and/or loan documentation, and/ or the opening and operation of the India Accounts. No separate allegation has been made in the SCN against the Appellant in his own right, or under Section 42(2) of FEMA, nor has it been alleged that the Appellant acted outside his authority or without exercising due diligence. In fact, the record bears out that the Appellant had, in fact, exercised due diligence to the extent required by him in his limited role at SCB, which, as explained below, was only acting as the sub-agent of the escrow agent, SCB, Mauritius. Therefore, the alleged contraventions and the Impugned Order as against SCB (and consequently the Appellant) is untenable and bad in law. Erroneous findings on alleged contravention of the Guarantee Regulations and of the Deposit Regulations have been made. The Ld. AA erred in concluding that the INR Account and the Share Account are “Escrow” accounts. The Ld. AA misinterpreted RBI/2006-2007/413 A.P. (DIR Series) Circular No. 62 dated 24.05.2007 (RBI Circular); Notification No. FEMA 162/2007-RB dated September 18, 2007 (RBI Notification). No case has been made out for proceeding against and/or holding the Appellant liable in terms of Section 42 of FEMA. The quantum of penalty imposed on the Appellant under the Order is excessive.

32. Ld. Counsel for the Appellant Shri Ranjan Ghosh submitted that the Impugned Order has been issued with non-compliance of the mandatory provisions of Section 16(6) of FEMA. The Ld. AA failed to appreciate that there had been gross delay in both the commencement and completion of the adjudication proceedings. The Ld. AA has summarily dismissed the Appellant’s submissions of gross delay of 5 years in completing the proceedings. The Ld. AA failed to appreciate that the issuance of the SCN was vitiated by non-application of mind, since the SCN was issued only a day after the Complaint dated 16.12.2014, on which the SCN was purportedly based, despite the Complaint itself being very voluminous, with over 50 Annexures, running into 2 volumes and issued to 26 separate Noticees. Ld. AA failed to appreciate that the SCN stood vitiated by reason of the Enforcement Directorate having prejudged the guilt of the Noticees. The Ld. AA has failed to comply with the mandatory provisions of Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, which postulate that the charges as framed be explained to the Noticee at the outset of the hearing. Ld. Counsel therefore pleaded to allow the Appeal filed by Shri Ranjan Ghosh.

Arguments by the Respondent

33. Ld. Counsel for the Respondent Directorate submitted that the facts of case are clear leaving no scope for ambiguity. The RBI vide its letter dated 30.03.2007 had given permission for transfer of 46,862 shares to seven individual entities, who were residents outside India. However, the Board of TMBL approved the transfer of shares on 13.05.2007 to the wholly owned entities of those who had been approved by RBI in whose name the shares had to be transferred. Even when the RBI raised a query on 20.01.2009 as to why the shares were not transferred as approved, the Appellant TMBL failed to give reasons for their failure in their reply. Ld. Counsel also argued that the Order dated 31.03.2011 of the Deputy Governor of RBI has been wrongly claimed by the Appellant to be the reason for recording the subsequent transfer of 27,289 shares out of 46,862 shares by the residents outside India to entities, which were also residents outside India. Ld. Counsel argued that the Impugned Order has clearly brought out that further transfer of the shares, which in first place were wrongly registered by the Appellant TMBL, could not have been further transferred in accordance with law. Ld. Counsel therefore pleaded to dismiss the Appeal filed by TMBL.

34. Ld. Counsel for the Respondent Directorate contested the contention of almost all the Appellants that there was inordinate delay in the initiation of the adjudication proceedings. Ld. Counsel stated that first and foremost, the investigation was initiated at the instance of RBI vide its letter dated 16.03.2011 to the Respondent Directorate. On initiation of the investigations, directive was issued to the Appellant TMBL on 21.09.2011 and it was revealed that a number of entities were involved in the contravention of FEMA. Moreover, the contraventions in themselves involved a large number of issues, which related to transfer of 46,862 shares of TMBL to non-residents on 13.05.2007, without the required permission/approval of the RBI. The investigation also revealed further contraventions of the provisions of FEMA in the subsequent transfers made out of these shares in December, 2011 and June, 2012. It therefore became necessary to examine a large number of persons involved in these transactions and those who formed part of the Board of Directors of TMBL and certain other officials of the Bank at the relevant points in time. Further investigations led to unearthing of the role played by the SCB and its officials in facilitating these transactions and thus getting involved in the contraventions of FEMA. These officials were also examined. In all these investigations records had to be summoned and examined. In this process another contravention indulged in by Shri M G M Maran then Chairman of TMBL also was revealed which too had to be scrutinized and investigated. The Respondent Directorate was thus able to issue the SCN on 17.12.2014. The allegation made by the Appellants that there was non-application of mind in issuing the SCN since the Complaint under Section 16 (3) of FEMA was filed on 16.12.2014 cannot stand. Such allegation is without any basis and is hypothetical in nature. Ld. Counsel pleaded that none can estimate the capacity of the Authority which has issued the SCN since it cannot be overlooked that the Authority concerned is rich in experience in dealing with such matters and have deep comprehension to appreciate the investigation and the evidence unearthed in such investigation. Ld. Counsel also submitted that there were 26 Noticees and reasonable opportunities, in the interest of principles of natural justice had to be granted to all the Noticees at all the stages of investigation and adjudication. Ld. Counsel cited Part 4 of the Impugned Order to bring out that the Appellant SCB vide its letter dated 24.12.2014 acknowledged the receipt of the SCN. The Appellant Shri A K Jagannathan acknowledged the receipt of SCN on 22.12.2014. In fact, all other Appellants acknowledged the SCN only in January, 2015. Most of the Appellants sought time to file interim replies and thereafter further time to file additional and final replies. The Appellant TMBL filed reply on 06.05.2015 and the Appellant SCB and its officials filed reply on 23.06.2015. Such replies continued to be filed in July and August, 2015. Ld. Counsel stated that a copy of the final award delivered by International Centre for Dispute Resolution in New York was filed by SCB on 01.12.2015. Not only various replies, but also other documents filed had to be scrutinized and studied leading to grant of personal hearings to the Noticees from 28.08.2019 which continued till 12.12.2019. Ld. Counsel denied non-adherence to the provisions of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. Ld. Counsel stated that the allegation against the Ld. AA of having not explained to the Appellant or its representatives the contravention alleged to have been committed is baseless, which is obvious from the fact that besides the preliminary submissions made by the Appellants, further opportunities were also granted for the hearings. Ld. Counsel asserted that the Judgment cited by the Ld. AA passed by the Hon’ble Madras High Court shall be applicable to the present case, in view of the matter having arisen in the jurisdiction of Tamil Nadu. Ld. Counsel contended that compliance to the Judgment of the Hon’ble Supreme Court in the matter of Kanwar Natwar Singh was thus met with. The Impugned Order was therefore judiciously passed on 14.08.2020. Ld. Counsel asserted that given the complexities of the issues involved, entailing in depth examination and comprehensive dealing with the issues, the Impugned Order which comprised of 179 pages was issued on 14.08.2020. Ld. Counsel pleaded that it needs to be appreciated that the Adjudicating Authorities in the Respondent Directorate are also executive authorities, who besides being responsible for adjudication of the SCNs are also performing other duties and functionalities under FEMA as well as the Prevention of Money Laundering Act, 2002. Thus, the period taken to complete the investigation and to pass the Impugned Order was reasonable under the facts and circumstances of the present case.

35. Ld. Counsel for the Respondent Directorate submitted that as a part of the statement dated 16.07.2013, the Appellant Shri M G M Maran, inter alia, stated that he was the Director of TMBL from the year 2000 to 2008 and that he was the Chairman of TMBL in 2007. This is further reinforced by the fact that the name of the Appellant appears on the Board Resolution dated 13.05.2007 in which it was resolved to record the transfer of a total of 48,862 shares in the name of seven overseas entities, in whose name permission was not granted by the RBI, for acquisition of shares by way of sale from persons resident in India. Thus, the Appellant was the Chairman of TMBL at the relevant time and was the person in charge of the Company and responsible for the conduct of the Company when the aforementioned shares were transferred without the prior permission of the RBI. Despite knowing well that the approval by the RBI was for different names, the Appellant approved the recording of transfer of shares for names other than those approved by RBI in the Board Meeting dated 13.05.2007. Therefore, it can be concluded that the Appellant was negligent in his conduct and failed to exercise due diligence required in this matter. The Appellant, a person resident in India had acquired US$ 68,50,000 in Singapore as consideration for facilitating and assigning the rights towards transfer of 95,418 TMBL Shares in favour of Katra Holdings Ltd., Mauritius thereby contravening the provisions of Section 4 of FEMA. Further, the Appellant failed to take any steps to realise and repatriate to India, foreign exchange to the tune of $ 68,50,000/ which is direct contravention of Section 8 of FEMA read with Regulation 3 and 4 of Foreign Exchange Management (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000. Also, by opening and maintaining a Foreign Currency Account bearing No. 7102356 with ABN Amro Bank N.V. Singapore Branch, Singapore and receiving the said amount of USS 68,50,000/ on 18.05.2007, as evidenced by the telefax Advice dated 18.05.2007 from LGT Bank in Liechtenstein AG, Herrengasse 12, FL-9490, Vaduz, Furstentum, Liechtenstein as per the order of Katra Holdings Ltd., Mauritius, the Appellant has also contravened Regulation 3 of the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulation, 2000. It is important to mention that the aforementioned provisions apply to a person resident in India. The impugned transaction took place on 18.05.2007. The Appellant has fallaciously submitted that he was not a person resident in India during the Financial Year 2006-07 for the purposes of Section 2(v) (1) (A) of FEMA. Since the transaction in question took place on 18.05.2007, it is imperative to prove that the Appellant was a resident in India in the FY 2006-07. It is submitted that the Appellant had only travelled abroad for a finite period, and did not exhibit his intention to stay outside India for an uncertain period, despite having set up a Company in Singapore and having paid taxes for the income generated through it. The Appellant had a huge business empire in India. Further, it is submitted that the Appellant had resided in India for a period of 191 days in the Financial Year 2006-07, therefore, exceeding the threshold of 182 days required to determine whether a person is resident in India or not. The Appellant was seen to have travelled abroad frequently and come back to India for days ranging from 3 to 17 days in a particular month in the FY 2006-07. The Appellant had not given any disclosure to the TMBL about the change in the residential status, if any. Ld. Counsel therefore pleaded to dismiss the Appeal filed by Shri M G M Maran.

36. Ld. Counsel for the Respondent Directorate submitted that this is a case where the Appellants Shri G Narayana Moorthy, Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan were held vicariously liable for the contraventions committed by TMBL for contravening the provision of Section 6(3)(b) of FEMA read with Regulation 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, by registering transfer of 46,862 number of shares in total involving value of Rs.113,32,16,884/- in the names of seven overseas entities, in whose names permission was not granted by RBI for acquisition of shares by way of sale from persons resident in India. From the letter of TMBL to the Respondent dated 20.04.2013, it is obvious that the Directors of the Bank, including Shri G Narayana Moorthy, the Managing Director and the CEO, attended the Board Meeting held on 13.05.2007, in which proposal to record the transfer of shares in the names of seven non-resident entities, whose names were not approved by RBI, was passed unanimously. At the time, TMBL did not have a separate share transfer committee and all the share transfer requests were placed before the Board. Ld. Counsel for the Respondent submitted that all the Directors including the RBI Nominee Directors and the Appellants were either consensual to the proposal and/or negligent in their conduct by approving the proposal to register the transfer of shares in the names of seven non-resident entities, whose names were not approved by the Reserve Bank of India. Moreover, the Appellants and other Directors could have raised objections for recording the transfer of the shares in names of the entities, which were not found mentioned in the RBI letter dated 30.03.2007. But they failed to exercise due diligence required in this matter. All the Independent Directors including the Appellants and RBI nominee Directors, who were expected to act as watchdogs failed in their duty. Ld. Counsel for the Respondent submitted that as per stipulations of RBI, the Independent / Non-Executive Directors have a prominent role in inducing and sustaining a pro-active governance framework in banks. Private sector banks were required to ensure that the Directors on their Boards representing specific sectors as provided under Section 10A of Banking Regulation Act, are indeed representatives of those sectors in a demonstrable fashion, they fulfill the criteria under corporate governance norms provided by the Ganguly Committee and they also fulfill the criteria applicable for determining ‘fit and proper’ status of Important Shareholders (i.e., shareholding of 5 per cent and above) as laid down in RBI Circular dated 25.06.2004. They are appointed after following ‘fit and proper’ criteria prescribed by the RBI for the purpose of ensuring higher corporate governance. Ld. Counsel for the Respondent submitted that the Appellant being independent Non-Executive Directors (other than Shri G Narayana Moorthy) in the Board, ought to have gone through the Board Note relating to the Board Meeting dated 13.05.2007 and Annexures to the Board Note more carefully, which included the RBI letter dated 30.03.2007. Had the Appellants and other Directors been more vigilant, the fact that Board recommended transfer of 46,862 shares from persons resident in India to seven overseas entities, which were not mentioned in RBI’s letter dated 30.03.2007 could have been noticed and at least attempt to question, if not stalling the move could have been initiated. But Appellants and other Directors failed in their duty. Moreover, Independent Directors are not expected to act as rubber stamp for any proposal put up by the Board without proper scrutiny of the proposal and related documents. Hence, the Appellants cannot argue that they attended the board meeting and voted for a resolution without proper due diligence. Ld. Counsel for the Respondent submitted that to be held responsible for the contravention of the provision of FEMA, the Appellants need not be in charge of and responsible for the conduct of the TMBL. Their conduct of approving the board resolution as above can amount to consent or neglect. Ld. Counsel therefore pleaded to dismiss the Appeals filed by Shri G Narayana Moorthy, Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan.

37. Ld. Counsel for the Respondent Directorate submitted that the Appellant Shri K K Sharma, as a Company Secretary of TMBL, had a fundamental duty to meticulously bring out factual position regarding the correct names for whom RBI granted it’s no objection for transfer of shares by way of sale. Further, the Appellant failed to bring to notice the Note and its associated Annexures of the Board, before the Board Meeting held on 13.05.2007. Moreover, the Company Secretary is expected to not merely endorse every proposal the Board presents without rigorous scrutiny of the proposal and its relevant documents. It is unreasonable for the Appellant and fellow Directors to contend that they can attend a Board meeting and vote on a resolution without conducting due diligence, only to later claim exemption from responsibility in the event of a contravention arising from that resolution. Accountability is essential in maintaining the integrity of the Board decision-making process. Further, it is respectfully submitted that the Appellant should be held accountable for violating FEMA. The Appellant does not have to oversee the operations of TMBL Bank. However, by endorsing the aforementioned board resolution, his actions could be interpreted as consent or neglect. Ld. Counsel further submitted that the case of M/s Jaipur IPL Cricket Pvt. Ltd. vs. The Special Director, Directorate of Enforcement, Mumbai in FPA-FE-9/MUM/2013 concerns an issuance of shares where due to technical reasons necessary approvals could not be obtained for the issue. The Ld. AA issued Show Cause Notices to the Directors which were then challenged. One of the Appellants, argued that he was merely a minority shareholder and one amongst nine other Directors of the entity. Therefore, he was not in overall control of the entity’s operations and hence ought not to be held liable. However, the court disagreed with the contention and stated that the legislative intent of Section 42 of FEMA is not to merely impose liability on the ultimate controlling figure of the entity, but to caution individuals who are privy to the operations of the entity to act in compliance with the law. Therefore, even individuals who were aware of the contravention and allowed it to happen, albeit passively, through their neglect or consent, would be vicariously liable for the said offence. In the present matter, the act of the Appellant giving their consent to the approval of transfer of shares would fall under the violation of Section 42 (2) of FEMA. It is submitted that the Appellant is attempting to create a nebula around the factual matrix. However, the Appellant, did not apply due diligence. Ld. Counsel therefore pleaded to dismiss the Appeal filed by Shri K K Sharma.

38. Ld. Counsel for the Respondent Directorate challenged the Appeal filed by the Appellant Shri B Prabaharan then Chairman of TMBL, at the point in time when the subsequent transfers of 27,289 shares were recorded by TMBL. Ld. Counsel for the Respondent Directorate further submitted that the Appeals filed by the Appellant Shri A K Jagannathan then MD and CEO of TMBL, by the Appellants Shri S Sundar, Shri P Yesuthasen & Shri A Shidabaranathan (all then Directors of TMBL), by the Appellants Shri K N Rajan and Shri K V Rajan (both being RBI Nominee and Directors of TMBL at the relevant time) and by the Appellant Shri Deepak C S, then Company Secretary may also be dismissed as they were liable for penalty under the provisions of Section 42 of FEMA. Ld. Counsel submitted that the minutes extracted from the Board of Directors meeting held on 26.12.2011 clearly affirmed the decisive action taken regarding the transfer of shares to M/s. Sub-Continental Equities Limited. Notably, Noticees No. 15, 16, 18, 19, 21, 22, 23 & 24, along with distinguished participants S/Shri S. C. Sekar, S. R. Aravind Kumar, and P. Mahendravel, were present during this pivotal meeting. It is important to highlight that Noticee No. 15 served as the Chairman, while Noticee No. 16 took on the role of Managing Director of TMBL. As RBI Nominee Directors, Noticee No. 22 and Noticee No. 23 brought their invaluable insights to the deliberations. On that particular day, it is worth noting that there was no Company Secretary for Noticee No. 1 TMBL. Nonetheless, the resolution to register the transfer of shares in the name of M/s. Sub-Continental Equities Limited, Mauritius, was passed by a majority vote of the Board. It is pertinent to note here that S/Shri S. C. Sekar, S. R. Aravind Kumar, and P. Mahendravel raised a valid dissent concerning the fundamental issue that the original entities holding the shares were in violation of FEMA. Ld. Counsel contended that this was not just a minor oversight, but warranted immediate referral to the RBI for further investigation.

39. Ld. Counsel for the Respondent Directorate further submitted that meanwhile, Noticee No. 16, Shri A K Jagannathan then Managing Director and CEO, chose to remain silent, which was deeply concerning. This reluctance to share any perspective undermined the accountability expected from someone in his position. Moreover, it is unacceptable that he simply deferred to the Board decision without offering his guidance to ensure legal compliance. The only way he could have avoided vicarious liability was by unequivocally demonstrating that he had no knowledge of the contravention or that he exercised all due diligence to prevent it. His inaction raises serious questions about his commitment to uphold the regulatory standards and protect the bank’s interests. He not only held the position of Managing Director, but was also the Chief Executive Officer of TMBL. He was inherently responsible for day-to-day activity and was expected to lead with authority and decisiveness. He failed to perform the fundamental duty to review the Board Note and its Annexures regarding the Board Meeting held on 26.12.2011. As MD and CEO he was not expected to abstain from performing his duty.

40. Ld. Counsel for the Respondent Directorate stated that the other Directors voiced their support for the resolution, overlooking the critical fact that the transferor entity did not possess the necessary approval from the RBI, as mandated by FEMA, to initially hold those shares. In light of this, the registration of further share transfers from those entities to M/s. Sub-Continental Equities Limited in Mauritius, wrongly argued by the Appellants as compliance to the orders issued on 31.03.2011 by the Deputy Governor of the RBI in fact amounted to a violation of Regulation 4 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.

41. Ld. Counsel for the Respondent Directorate stated that the extracts of minutes of the meeting dated 11.06.2012 of Board of Directors held for the purpose of considering and approving the registration of 14,080 shares of the bank in the name of M/s. Robert & Adris James Company Limited, Mauritius, show that Noticee No. 15, Noticee No. 17, Noticee, No. 18, Noticee No. 19, Notice No. 21, Noticee No: 22 and Notice No. 23, participated in their capacity as Directors of TMBL. Noticee No. 24 was the Company Secretary of TMBL as on 11.06.2012. The Board resolved to approve the registration of transfer of 14,080 shares in the name of M/s. Robert and Ardis James Company Limited, Mauritius. Shri S.R. Aravind Kumar, Director dissented on the ground that the transaction of TMBL shares, which was routed through the Project Wind Mill account by FIs, NRIs and others was under investigation by the Enforcement Directorate pursuant to the reference made by RBI and that the TMBL should wait till a clear picture emerges. Shri S.C. Sekar and Shri P. Mahendravel, Directors, dissented with the decision on the ground that no permission under Indian Law or FEMA or the Foreign Exchange Department of the RBI had been granted to M/s. GHI I Limited to acquire shares in TMBL. It is important to note that the authorization was exclusively granted to Shri Rajat Gupta in his individual capacity, therefore, the transfer of shares to M/s. GHI Limited was deemed void ab initio, as it contravened Indian law. Furthermore, given that the transaction was under investigation by the Enforcement Directorate, it was imperative that their permission be secured. The other Directors voted in favor of the resolution, neglecting to consider that the transferor entity lacked the requisite approval from the RBI under the provisions of FEMA, to possess those shares initially. It is crucial to emphasize the Board Note dated 08.06.2012 regarding “Agenda 5” bears the signature of Noticee No. 24 i.e. Shri Deepak C S. Significantly, this registration is recorded in the official documents of TMBL under the name of M/s. GHI I Ltd., a subsidiary wholly owned by Shri Rajat Gupta. However, the approval by RBI for the share transfer was distinctly granted for a transaction initiated by the sale under the name of Shri Rajat Gupta alone and not in favor of M/s. GHI I Ltd. Moreover, transferring shares from these entities to M/s. Robert and Adris James Company Limited in Mauritius, under the pretext of following the Deputy Governor’s orders dated 31.03.2011, not only contradicts regulatory intentions but also blatantly breaches Regulation 4 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.

42. Ld. Counsel for the Respondent Directorate submitted that the Chairman, all Directors and RBI Nominee Directors, who were expected to act as watchdogs, failed in their duty. In accordance with the stipulations set forth by the RBI, independent and non-executive Directors are expected to play a crucial role in establishing and maintaining a proactive governance framework within banks. Private sector banks are mandated to ensure that the Directors on their Boards, representing specific sectors as outlined in Section 10A of the Banking Regulation Act, are indeed demonstrable representatives of those sectors. Furthermore, they must comply with the corporate governance criteria established by the Ganguly Committee, as well as the requirements for determining the ‘fit and proper status of significant shareholders (i.e., those holding 5 percent or more), as delineated in the RBI Circular dated 26.06.2004. Appointments are made after adherence to the ‘fit and proper’ criteria prescribed by the Reserve Bank to promote enhanced corporate governance. It is imperative to assert that the Appellant, as a Chairman on the Board, had a fundamental duty to meticulously review the Board Note and its associated annexures regarding the Board Meeting held on 26.12.2011. Moreover, the Chairman was expected to not merely endorse every proposal the Board presents without rigorous scrutiny of the proposal. It is unreasonable to contend that they can attend a Board meeting and vote on a resolution without conducting due diligence, only to later claim exemption from responsibility in the event of a contravention arising from that resolution. Accountability is essential in maintaining the integrity of the Board’s decision-making process. Further, it is submitted that the Appellant should be held accountable for violating FEMA. The Appellants do not have to oversee the operations of TMBL Bank. However, by endorsing the aforementioned Board Resolutions, their actions could be interpreted as consent or neglect. Ld. Counsel therefore pleaded to dismiss the Appeals filed by Shri B Prabaharan, Shri A K Jagannathan, Shri S Sundar, Shri P Yesuthasen, Shri A Shidabaranathan, Shri K N Rajan, Shri K V Rajan and Shri Deepak C S.

43. Ld. Counsel for the Respondent Directorate submitted that the challenge by the Appellants SCB and its Official Shri Ranjan Ghosh are misplaced and misconceived. The Impugned Order has clearly stated that the investigation in the matter was of complex nature which involved time consuming efforts for collection of documentary evidence. The Adjudication proceedings involved multiple Noticees, voluminous documents and complex cross border transactions spanning multiple jurisdictions. The Appellants themselves sought and granted multiple frequent adjournments. Hence, the arguments of the Appellants that contrary to Section 16(6) of FEMA, the period in passing the Impugned Order was long and delayed cannot stand. In fact, the timeline if evaluated under these circumstances, clearly reflects that a well-reasoned Order was passed within reasonable period of time.

44. Ld. Counsel for the Respondent submitted that the case of the Appellant relating to the Deposit Regulations rests on the assertion that the India Accounts were “current accounts” that happened to be named escrow accounts. This is belied by the actual manner in which the accounts were operated. The Share Account was specifically opened to hold TMBL shares as part of a structured escrow arrangement for the benefit of 7 foreign entities. The INR Account received and disbursed sale consideration of over Rs. 113 crores as part of the same structured arrangement. These accounts were not ordinary current accounts. These were set up and used as escrow accounts forming an integral part of a complex cross-border transaction involving the transfer of shares of a scheduled bank. Re-labelling these as “current accounts” does not alter their basic character. These were also operated under an escrow agreement dated 30.03.2007 as per instructions by multiple parties and did not operate as a simple “current account” as represented by SCB India. The holding of these shares by SCB India for the benefit of foreign entities falls squarely within the concept of “deposit” under the Deposit Regulations, requiring prior RBI permission which was admittedly never obtained. The transaction structure was deliberately designed so that the role of SCB India appeared ministerial, but it was SCB India that opened the account, received the funds, and made the disbursements in India. As the Authorised Dealer, SCB India failed as the last line of regulatory compliance in India and could not have outsourced that responsibility to its foreign counterpart in Mauritius.

45. Ld. Counsel for the Respondent Directorate submitted that the Appellant argued that the RBI Circular dated May 24, 2007, the Amended Circular dated May 2, 2011, and the Notification dated September 18, 2007 do not apply to the present facts because these pertain to escrow accounts in the context of open offers, delisting, and exit offers under SEBI Regulations. This position is correct in so far as the regulations allow listed entities to operate escrow accounts without prior approval of the RBI, however, it needs to be appreciated that prior approval can be done away with, only in certain circumstances. However, these circulars and notifications in fact reinforce the fact that in all other circumstances, such as the illegal escrow account used in this case, required prior RBI approval under Regulation 3 of the Deposit Regulations. The arguments of the Appellant proceeds from a narrow contractual analysis. However, the Ld. Adjudicating Authority correctly found that the arrangement as a whole, the custody of title deeds over 62 acres of Bangalore land, the holding of blank share transfer deeds representing 40% of the paid-up capital of TMBL, and the Non-Disposal Undertaking, constituted a security arrangement for the benefit of SCB Mauritius in respect of the loans advanced. The commercial and legal substance of this arrangement was that SCB India held assets which could be enforced (through the Power of Attorney) in the event of default which had the effect of guaranteeing the loans, regardless of the label attached. The finance letters dated December 29, 2006, and March 30, 2007, with KHL included security provisions as “covenants” and “conditions precedents” as found by the Ld. AA. The overall transaction structure including the TMBL shares held in the Share Account and the Non-Disposal Undertaking provided implicit security for the entire loan facility. The Appellant characterised the Non-Disposal Undertaking as a general negative covenant in the banking facility letters (para 3.1(b)(i) of the facility letters dated 9 May 2007). This ignores the practical effect that by undertaking not to dispose of their TMBL shares without prior written notice to SCB Mauritius, the borrowing entities effectively gave SCB Mauritius, through SCB India, de facto control over the TMBL shares held in the Share Account.

46. Ld. Counsel for the Respondent Directorate stated that the Appellant submitted that Regulation 3 of the Guarantee Regulations prohibits the “giving” of a guarantee and therefore only the resident issuer (i.e., Ramesh Vangal/Arudrama Developments) could be charged. If accepted, this argument would create an absurd position where the bank that actively facilitated, structured, and maintained the illegal security arrangement, taking physical custody of the title deeds and shares, bears no regulatory responsibility. SCB India was an active participant in the contravention. SCB India and SCB Mauritius share the same ultimate parent Standard Chartered Plc, UK. The arrangement between them cannot be characterised as an arm’s-length agency relationship between independent parties. The Ld. AA correctly found that the arrangement was “an arrangement of convenience” rather than a genuine agent-sub-agent relationship. Both entities were working in concert towards a common commercial objective, with SCB India’s “sub-agency” role being a convenient legal construct to attempt to insulate SCB India from regulatory consequences in India. Even accepting the sub-agency characterisation, it does not exonerate SCB India of its independent obligations as an Authorised Dealer under FEMA. An Authorised Dealer is the regulatory gatekeeper for foreign exchange transactions in India and has independent obligations under FEMA that cannot be waived or delegated by reference to instructions from a foreign counterpart. The Transfer Regulations exoneration was on the ground that an agent cannot be liable for its principal’s acts in the context of the transfer itself. The Guarantee Regulations contravention is based on SCB India’s own independent act of taking custody of title deeds and TMB shares as collateral. An act that was SCB India’s own and not merely incidental to its role as SCB Mauritius’s sub-agent in the transfer. The Amended and Restated Escrow and Transaction Settlement Agreement dated May 12, 2007 expressly refers to SCB India in Clauses 4.3.7.3, 4.3.7.4, Recital (c) and Clause 4.4.1. SCB India’s role in the transaction structure is explicitly contemplated and incorporated in the Escrow Agreement. It was not merely incidentally involved as an uninformed banking correspondent.

47. Ld. Counsel for the Respondent Directorate contended that the Appellant SCB India’s senior management, including Shri Ranjan Ghosh, were involved in discussions about the transaction from its earliest stages. SCB India’s letter to TMBL dated May 12, 2007, requesting registration of shares in the name of the respective investors demonstrates that SCB India was a proactive participant in the transaction, exercising its own judgment and acting on behalf of the buying entities, rather than merely a passive conduit following ministerial instructions. The contraventions were serious, involved a major scheduled bank acting as Authorised Dealer in a complex structured transaction involving hundreds of crores of rupees in share consideration and tens of millions of US dollars in loan financing, all deliberately structured to circumvent RBI permission requirements. The scale and sophistication of the arrangement justifies the significant penalty imposed. In the present case, the statements of Shri Ranjan Ghosh and Shri Jaydeep Jayakar are corroborated by the documentary evidence on record, the Escrow Agreement, the banking facility letters, the SWIFT instructions, and the email correspondence. The Appellants themselves concede that neither of them has retracted from the statements recorded before the Respondent. The probative value of these statements accordingly remains intact.

48. Ld. Counsel for the Respondent Directorate submitted that the Impugned Order records that Shri Ranjan Ghosh occupied the position of Business Head, SCB Mumbai (starting from Global Account Manager from June 1999 till 2001 and then Head of Sales and Credit Services until December 2002), and thereafter Managing Director, Global Head of Banks, Financial Institutions Group, Origination and Client Coverage, SCB Mumbai and Singapore (in 2003 he was the Head of Financial Institutions India and Nepal, then promoted to Regional Head of Financial Institutions, India and South Asia from 2006 to 2008, the period during which the transactions transpired, was moved to Singapore in 2008 and later on in December 2012 went on to be elevated to Managing Director and Global Head of Banks, Financial Institutions Group at Singapore). The Financial Institutions Group at SCB Mumbai, which Shri Ranjan Ghosh headed, was the very division through which the impugned transactions were originated, structured, and presented for internal approval. The Appellant’s own statement before the Respondent Directorate confirms his involvement in the transaction from its earliest stages, including discussions with Corsair’s representative regarding the transaction structure. His role was not that of a peripheral functionary but of the officer who originated and championed the transaction internally within the SCB group. The Appellant attempted to dismiss the E-mails as relating to a “contemplated” transaction that never materialized. Such an argument is fallacious. The transaction that was ultimately implemented involved the very same parties and the same TMBL shares as discussed in these E-mails. Ld. Counsel contended that the threshold under Section 42(1) of FEMA is not confined to the CEO or MD, it extends to any person “in charge of and responsible to the Company for the conduct of the business” in relation to the particular contravening transactions. Shri Ranjan Ghosh, as head of the FIG Division cannot escape the responsibility as the Division was directly responsible for originating and executing the impugned transaction. Shri Jayakar was a direct participant in the impugned transaction as an SCB employee. His statement, given under Section 37 of FEMA, is admissible as evidence. Shri Jayakar’s statement is corroborated by the email chain and the documented involvement of Shri Ranjan Ghosh in the transaction. The Appellant’s characterization of this as uncorroborated third-party testimony is factually incorrect. The Appellant himself concedes that he “never retracted from his statement before the Respondent.” The Appellant’s own recorded statement, in which he acknowledged the security arrangements, his knowledge of the transaction structure, SCB Mauritius’s instructions and the knowledge that the practice of creating such security arrangements without approval is illegal forcing SCB India to change its illegal stance later, stands as a valid admission. The Appellant contended that the FIG Division was responsible only for marketing, credit underwriting, and client relationship management and had no role in operations or account management. This self-serving characterization ignores the totality of the evidence. The Ld. AA found, based on statements and documents, that the transaction structure, including the escrow account arrangement and the collateral arrangement, was conceived and promoted at the FIG level under Shri Ranjan Ghosh leadership despite clear knowledge of the 5% cap under Banking Regulations. The claim that Shri Ranjan Ghosh had no oversight over the execution of a transaction which he himself originated and championed before group-level approvers defies commercial logic and the weight of evidence. The penalty of Rs. 40 lakhs on a senior banking professional who was the originating officer for the impugned transaction is proportionate and does not warrant reduction by this Hon’ble Tribunal. Ld. Counsel therefore pleaded to dismiss the Appeals filed by SCB and its official Shri Ranjan Ghosh.

Discussions and Findings

49. We have considered the submissions made by the Appellants including TMBL and its Chairmans, Managing Directors, CEOs and Directors holding such positions, at the relevant points in time, as well as the submissions made by the Appellant SCB and its Official Shri Ranjan Ghosh. We have also considered the counter arguments made by the Respondent Directorate. During the course of such consideration, we have examined the material on record furnished by the two sides, as well as, the Impugned Order. The judicial pronouncements cited by the two sides have been perused and dealt with in so far as these are applicable to the facts and circumstances of the present case. As already mentioned in Paragraph 2 of this Order, the Impugned Order has disposed of the SCN in terms of passing an Order relating to the following four set of issues:

A. The first set of issues arise from transfer of 46,862 shares of TMBL to seven foreign investors without prior approval of RBI for a total consideration of Rs. 113,32,16,884/-.

B. The second set of issues has arisen from the fact that subsequent to the transfer of 46,862 shares of TMBL, 13,209 shares of TMBL were further transferred to M/s Sub-Continental Equities Ltd., Mauritius on 26.12.2011 for total consideration of Rs. 90,31,41,094/- and 14,080 shares of TMBL were further transferred to M/s Robert Adris James Company Ltd., Mauritius for a total consideration of Rs. 70,40,00,000/-.

C. The third set of issues has arisen from opening an Escrow Account in the name of “SCB Project Windmill (Sale Consideration) Escrow Account and another Escrow Account in the name of “SCB Project Windmill (Shares) Escrow Account on 12.05.2007 in SCB, Mumbai. Further allowing deposit in the said Escrow account totaling Rs. 113,32,16,884/- from 7 foreign entities, towards transfer of shares of M/s Tamilnad Mercantile Bank, which were not permitted for transfer by the Reserve Bank, and keeping 1,12,151 shares of M/s Tamilnad Mercantile Bank in the “SCB Project Windmill (Shares) Escrow account”, without any permission of the RBI add to this set of issues. The third set of issues also relate to taking into custody title deeds of over 62 acres of land owned by Shri Ramesh Vangal (Director of M/s. Katra Holding Pvt. Ltd.) and M/s. Arudrama Developments Pvt. Ltd. (a company in which Shri Ramesh Vanagal was one of the Directors) and taking custody of TMBL shares as collateral/ guarantee, in lieu of which Standard Chartered Bank, Mauritius granted a loan of US$ 35.4 Million to three foreign entities viz., M/s GHI I Ltd., M/s Katra Holdings Limited, Mauritius, and M/s RST Limited and a further loan of US$ 20 Million to M/s. Katra Holdings Limited, Mauritius, thus totaling to US$ 55.4 Million, equivalent to Rs. 221,00,00,000/- (approximately), without any special permission from the RBI.

D. The fourth set of issue has arisen from the fact that Shri M. G. M. Maran, the then Chairman and Director of TMBL, a person resident in India, without the permission of Reserve Bank of India, opened an account vide No.7102356 with M/s ABN Amro Bank NV., Singapore Branch, Singapore in his name and received foreign exchange amounting to US$ 68,50,000 (equivalent to Rs. 28,08,50,000/-) in the said account from M/s Katra Holdings Limited, Port Louis, Mauritius, as consideration, for facilitating and assigning the rights towards transfer of shares of TMBL in favour of M/s Katra Holdings Limited, consequent to agreement dated 02.03.2006 with M/s Katra Holdings. He also failed to repatriate the same into India.

Consideration of Preliminary Objections

50. Most of the Appellants have challenged the Impugned Order on the grounds of certain preliminary objections. The first of these objections has been made on account of inordinate delay in completion of investigation and consequent issuance of SCN, as well as on the grounds of gross delay in passing of the Impugned Order after the issuance of the SCN. The Appellants have also raised the second objection on the ground that the SCN was issued on 17.12.2014 which was a day after the lodging of the Complaint on 16.12.2014. The argument runs that since the Complaint comprised of voluminous documents there could not have been application of mind on the part of the Adjudicating Authority in issuing the SCN. Thirdly the Appellants have also stated that the SCN pre-judged the guilt of the Noticees. Fourthly, the Appellants have contended that the provisions of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000 were not complied with. Contrary to Rule 4 Sub-Rule (3) of the said Rules 2000, a copy of the opinion formed by the Adjudicating Authority to hold an inquiry was not supplied which is a requirement laid down in the Judgment of the Hon’ble Bombay High Court in the case of Shashank Vyankatesh Manohar vs. Union of India [2013 (5) ALL MR 551]. Moreover, in accordance with Sub-Rule (4) of Rule 4 of the aforementioned Rules 2000 the Adjudicating Authority also failed to explain the contraventions to the Noticees, alleged to have been committed. Finally, the Appellants have alleged that the provisions of Section 16 (6) of FEMA were not adhered as the Complaint was not disposed of within one year of its filing.

51. We find that in the Impugned Order most of the preliminary issues have been dealt with. The Appellant TMBL has cited the Judgment in the matter of Government of India vs. Citadel Fine Pharmaceuticals [1989 (3) SCC 483]. Ld. AA has made the following observations in Paragraph 6.9 of the Impugned Order:

“Even in the case of Government of India Vs. Citadel Fine Pharmaceuticals Madras & others etc., the Hon’ble Apex Court observed that “In the absence of any period of limitation it is settled that every authority is to exercise the power within a reasonable period. What would be reasonable period, would depend upon the facts of each case. Whenever a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case notice or demand for recovery was made within reasonable period. No hard and fast rules can be laid down in this regard as the determination of the question will depend upon the facts of each case.”

In Paragraph 6.20 of the Impugned Order certain observations which have been made by the Ld. AA are also being reproduced below:

“……. The request for supply of initiation of inquiry under Rule 4 (3) of Foreign Exchange Management Act, 1999 is misplaced. Hon’ble High Court of Madras did not agree with the ratio laid down by the Bombay High Court in the case of Shashank Vyankatesh Manohar in the judgment dated 05/06/2018 of Division Bench of Madras High Court in the matter of “India Cement vs. Union of India” in Writ Appeal No. 476 of 2017 and observed as under:

“26. We are unable to persuade ourselves to agree with the decisions of the Bombay High Court in as much as they read into the provision, the requirement which is not contemplated under the Rules. We are, therefore of the view that the adjudicating Authority is not under any statutory obligation to communicate his reasons for forming an opinion to conduct an enquiry under sub-Rule 3 of Rule 4 of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. We may draw an analogy with the provisions of the Prevention of Money-Laundering Act, 2002. Section 5(1) of the said Act as amended by the Amendment Act, 2012 reads as follows: (1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purpose of this section, has reason to believe (the reason for such belief to be recorded in writing) on the basis of material in his possession, that,

27. Whenever a statute requires a particular thing to be done in a particular manner, it is a trite position of law that it should be done in that manner alone and not otherwise. The provisions of sub-Rule 3 of Rule 4 in contra distinction to the provisions of the Section 5(1) of the Prevention of Money-Laundering Act, 2002, do not require the reasons to be recorded in writing. If we are to read into the provision, such a requirement, the same in our considered opinion would lead to disastrous results, where notices under various enactments which provide for enquiry on the basis of a subjective satisfaction of the Adjudicating Authority or the enquiry officer or the Disciplinary Authority would take a stand that those Authorities should also record their reasons for forming an opinion and communicate the same.”

In another decision dated 25/08/2014 rendered in the case of “Ramakrishna Setty Vs. The Special Director” in W.P. No. 20592 of 2014, also and the Hon’ble Court observed as under:

“9. A careful look at the provisions of sub-rules (1) to (12) of Rule 4 would show that the enquiry by the respondent, comprises of five stages, which are as follows: –

1. The issue of show cause notice of a duration of not less than ten days, calling upon the person to show cause as to why an enquiry should not be held, for any contravention.

2. The issue of a notice fixing the date for the appearance of the person, if after considering the cause shown by the person to the show cause notice, the adjudicating authority is of the opinion that an enquiry should be held.

3. The explanation by the adjudicating authority in person, either to the noticee or to his authorised representative, the contravention committed by the noticee with reference to the provisions of the Act or the Rules or the Regulations.

4. Giving of an opportunity to the noticee to produce such documents or evidence, and the summoning and enforcing of the attendance of any person.

5. Passing of the orders.

10. Therefore, the scheme of Rule 4 actually provides opportunities at every stage to the noticee. The forming of an opinion at the stage of show cause notice and receipt of reply, as provided in sub-rule (3) of Rule 4, is almost akin to the forming of an opinion by a disciplinary authority to hold or not an enquiry, upon receipt of a reply to a charge memo in a disciplinary proceeding. Therefore, I do not think that there is any scope for expanding Rule 4(3) to mean that the forming of the opinion as required in Rule 4(3) has to be reflected by an order in writing containing reasons. The interpretation given by the Division Bench of the Bombay High Court to the expression opinion appears to be very elastic.”

The Hon’ble High Court of Madras in the case of “Ramamohan Rao Mynampati Vs. Special Director and another in W.P. NO. 7533 and 7534 of 2015 vide order dated 15.09.2015 disagreed with the decision taken by the division bench of Bombay High Court, mainly relying on the finding of the case of Ramakrishna Setty (supra) and held that a narrow and technical interpretation contrary to the scheme of the Act has necessarily to be eschewed. The order passed by the single bench in this case was challenged in W.A No. 1544 and 1545 of 2015 and the same was dismissed by the Division Bench of this Hon’ble Court on 16.10.2015. Special Leave Petition filed against this order in SLP No. 4883-4884/2016 too has been dismissed by the Hon’ble Supreme Court of India on 26.02.2016. Hence, it could be seen that the ratio laid down by the petitioner is not applicable to the jurisdiction of High Court of Madras.”

Further observations that have been made by the Ld. AA in Paragraphs 6.47, 6.48 and 6.51 of the Impugned Order are also being referred to as follows:

“6.47 Before proceeding further, I would deal with three preliminary objections raised on behalf of Noticee No. 25 and Noticee No. 26. The first one being that the first show cause notice dated 17.12.2014 was issued based on Complaint filed on 16.12.2014. The first Complaint itself was voluminous with over 50 annexures running into two volumes and was directed against 26 persons alleging contraventions against various entities premised on different facts and on different grounds. However, in the span of just one day the Ld. Adjudicating Authority issued the show cause notice based on the complaint that prima facie case has been made out against the Noticees. The haste in which the complaint was processed and the first show cause notice issued suggests a total non-application of mind and the show cause notice is liable to be withdrawn on this ground alone. I am of the view that the fact of complaint under Section 16 (3) of FEMA, 1999 dated 16.12.2014 having been before the Adjudicating Authority and the show cause notice having been issued on the very next of 17.12.2014, after considering the facts contained in the complaint and having perused voluminous documents that are relied upon in the complaint is not an impossibility. It was possible for the Adjudicating Authority to have devoted his entire energy and concentration on the complaint that was filed before him on 16.12.2004 and issued show cause notice even on the late night of 17.12.2014. The same cannot be termed as non-application of mind merely because the show cause notice was issued on the very next day of filing complaint under section 16 (3) of FEMA, 1999 before him.

6.48 ………… I have carefully gone through paragraphs 13 and 16 of the show cause notice under consideration. There can be two views about semantics used by the Adjudicating Authority. For an Adjudicating Authority under FEMA, 1999 to issue a show cause notice, a complaint under Section 16 (3) of FEMA, 1999 by an authorised officer is a pre-requisite. Upon perusal of the complaint and the materials relied in support, the Adjudicating Authority, appointed under section 16 (1) of FEMA, 1999, has to issue a notice to the person, who has contravened the provisions of FEMA, 1999, requiring him to show cause as to why an inquiry should not be held against him, in terms of rule 4 (1) of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. While issuing notice under rule 4 (1) of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000, the Adjudicating Authority is required to indicate the nature of contravention alleged to have been committed by him, in terms of rule 4 (2) of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. A plain reading of the show cause notice will only indicate compliance with these provisions. At no stage the Adjudicating Authority pre-judged the issue. After considering the replies filed by all the Noticees to the Show Cause Notice in terms of rule 4 (3) ibid, sufficient opportunities of having in person was offered to all concerned in terms of rule 4 (4) and 4 (5) ibid. Even assuming for argument sake, Noticee No. 25 and Noticee No. 26 are having issues with the language used in the paragraphs 13 and 16, then also no prejudice is caused to them. They have been afforded with sufficient opportunities of personal hearing, wherein all the arguments put forth by them were heard by me with open mind. Hence, the perception of Noticee No. 25 and Noticee No. 26 regarding the language used in the show cause notice is misconceived…………

6.51 I do agree that section 16 (6) of FEMA, 1999 nudges the Adjudicating Authority to deal with the complaint filed under section 16 (3) of FEMA, 1999 as expeditiously as possible and endeavour shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint but in the same breath provides that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period. This clearly indicate the legislative intention in accommodating element of delay that is bound to happen in such proceedings. It cannot be argued that merely because the adjudication proceedings had not been completed within a period of one year, the show cause notice is bad in law. In this case show cause notice and relied upon documents were furnished to both Noticee No. 25 and Noticee No. 26. Their replies were considered by the Adjudicating Authority before affording them opportunities of personal hearing. Their pleadings, oral and in writing, were duly considered. Merely on account of delay, it cannot be argued that prejudice had been caused to the Noticees. Even after issue of show cause notice bearing number T-4/10/BGZO/SRO/2014 dated 17.12.2014, investigations in the case continued, which culminated in the issue of another show cause notice bearing number T-4/15/CEZO-I/SRO/2017 dated 09.11.2017 to Noticee No.1 and others. It is for this reason inquiry proceedings as contemplated under Rule 4 of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 got delayed. However, no prejudice is shown to have been caused on account this delay and all the Noticees were given due and sufficient opportunities of having personally heard by the Adjudicating Authority as mandated under Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 and they were permitted to file additional/concluding submission in writing, if they chose to do so. As a matter of fact, no prejudice is caused to the Noticees on account of delay…………

…………All the judgments relied by Noticee No. 25 and Noticee No. 26 relates to specific facts relating to each of the cases. The facts of those cases, especially the alleged delay in those cases are not comparable with the facts of the present case under adjudication. Here, principles of natural justice, as mandated under Foreign Exchange Management Act, 1999 and its allied Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 were fully complied with and on that count no prejudice has been cause to Noticec No. 25 and Noticee No. 26 and I therefore reject the preliminary objections raised by them and proceed to decide the issues raised in the show cause notice.”

52. It is on record that the Respondent Directorate initiated the investigation against the alleged contraventions of FEMA on Reference dated 16.03.2011 from the RBI. The investigations conducted by the Respondent Directorate are found to be comprehensive since not only quite a few contraventions of FEMA were unearthed, but also statements of various persons were recorded leading to recovery of documents calling for in-depth examination. It would be erroneous to count the period for investigation from the day of occurrence of the contravention, since no such investigation could have been caused till such contravention was reported/discovered. We do not find the time taken to file the Complaint on 16.12.2014, can be regarded as unreasonable given the dimensions of the case being spread over multiple jurisdictions of Mauritius and Singapore involving two Banks viz TMBL and SCB, as well as a large number of persons including the Directors and the Senior Officials of the two Banks. Challenging the issuance of the SCN on 17.12.2014, one day after the lodging of the Complaint on the ground that the Adjudicating Authority could not have had capacity to appreciate the voluminous documents of the Complaint is conjectural and hypothetical. We cannot but agree with the Ld. Counsel for the Respondent that the inherent capacity of the Adjudicating Authority, who have had necessary experience cannot be questioned without any basis. Perusal of the Impugned Order clearly brings out that a number of opportunities were granted to 26 Noticees to the SCN for filing acknowledgments, interim replies, final replies and additional replies to the contraventions alleged in the SCN and the issues involved in such alleged contraventions.

We also note that the copies of the Complaint and the relied upon documents were also furnished to the Noticees. It is therefore difficult to sustain the objection about non-adherence to the provisions of Rules 4(3) and 4(4) of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000. An Appellant has pleaded that the challenge to the Judgment relating to SV Manohar (Supra) has failed before the Hon’ble Supreme Court of India is countered by the fact that similar challenge to the Judgment of the Hon’ble High Court of Madras in the case of “Ramamohan Rao Mynampati Vs. Special Director and another in W.P. NO. 7533 and 7534 of 2015 had also failed. We agree with the Ld. AA that for the matters relating to the jurisdiction of the Hon’ble Madras High Court, its Judgment shall prevail. Ld. Counsel for the Appellant TMBL has also cited the Judgment of the Hon’ble Supreme Court in the matter of Kanwar Natwar Singh vs. Directorate of Enforcement & Anr. [(2010) 13 SCC 255]. We cite Paragraph 23 of the Judgment (supra):

“23. The Rules do not provide and empower the Adjudicating Authority to straightaway make any inquiry into allegations of contravention against any person against whom a complaint has been received by it. Rule 4 of the Rules mandates that for the purpose of adjudication whether any person has committed any contravention, the Adjudicating Authority shall issue a notice to such person requiring him to show cause as to why an inquiry should not be held against him. It is clear from a bare reading of the rule that show cause notice to be so issued is not for the purposes of making any adjudication into alleged contravention but only for the purpose of deciding whether an inquiry should be held against him or not. Every such notice is required to indicate the nature of contravention alleged to have been committed by the person concerned. That after taking the cause, if any, shown by such person, the Adjudicating Authority is required to form an opinion as to whether an inquiry is required to be held into the allegations of contravention. It is only then the real and substantial inquiry into allegations of contravention begins.”

Ld. AA has stated in afore cited Paragraph 6.48 of the Impugned Order that after considering the replies filed by all the Noticees to the Show Cause Notice in terms of Rule 4 (3) ibid, sufficient opportunities for personal hearings were offered to all concerned in terms of Rules 4 (4) and 4 (5) of the Rules 2000 (supra). We therefore infer that the compliance required under the Judgment (supra) has been met during the course of the adjudication proceedings. The provisions of Section 16 (6) of FEMA are reproduced below:

“16. Appointment of Adjudicating Authority.—

(6) Every Adjudicating Authority shall deal with the complaint under sub-section (2) as expeditiously as possible and endeavour shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint:

Provided that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period.”

The perusal of the Section shows that the provisions thereof exhort the Adjudicating Authority to expeditiously dispose of the Complaint and endeavour shall be made to do so within one year of the receipt of the Complaint. The proviso to the Section itself admits the possibility of disposal of the Complaint after one year. We note that the first acknowledgment to the SCN was filed on 24.12.2014 followed by interim replies and replies thereafter. The last of which was dated 01.12.2015. Many of these replies filed by 26 Noticees had voluminous documents to support the respective arguments. We further find that the Adjudicating Authority conducted a number of hearings beginning from 28.08.2019 and ending on 12.12.2019. Most of the Noticees were given more than one opportunity for personal hearing. Ld. AA has also observed that the investigations were continuing which culminated into the issuing of another SCN bearing No. T-4/15/CEZO-I/SRO/2017 dated 09.11.2017 to Noticee No. 1 and others. Reasonableness has to be determined on the basis of circumstances and facts of each case. In the face of such facts and circumstances we cannot hold that the delay could be regarded as inordinate and the time taken either for the investigation or for the adjudication was unreasonable. The Hon’ble Supreme Court of India has made the following observations in the matter of State of Punjab v. Bhatinda District Coop. Milk Producers Union Ltd. [(2007) 11 SCC 363]:

“18. It is trite that if no period of limitation has been prescribed, statutory authority must exercise its jurisdiction within a reasonable period. What, however, shall be the reasonable period would depend upon the nature of the statute, rights and liabilities thereunder and other relevant factors.”

We therefore conclude that the contraventions of the provisions cited by the Appellants cannot be sustained. We concur with the observations made in the Impugned Order that no prejudice has been caused by such alleged contraventions and the principles of natural justice have not been violated. In this regard, we cite the following Judgment of the Hon’ble Supreme Court of India in the matter of Canara Bank vs. Debasis Das, [(2003) 4 SCC 557]:

“23. As was observed by this Court we need not go into “useless formality theory” in detail; in view of the fact that no prejudice has been shown. As is rightly pointed out by learned counsel for the appellants, unless failure of justice is occasioned or that it would not be in public interest to dismiss a petition on the fact situation of a case, this Court may refuse to exercise the said jurisdiction (see Gadde Venkateswara Rao v. Govt. of A.P. [AIR 1966 SC 828] ). It is to be noted that legal formulations cannot be divorced from the fact situation of the case. Personal hearing was granted by the Appellate Authority, though not statutorily prescribed. In a given case post-decisional hearing can obliterate the procedural deficiency of a pre-decisional hearing. (See Charan Lal Sahu v. Union of India [(1990) 1 SCC 613 : AIR 1990 SC 1480].”

Another Judgment of the Hon’ble Supreme Court of India in the matter of State Bank of Patiala vs. S.K. Sharma, [(1996) 3 SCC 364]:

“28. …………In our opinion, the approach and test adopted in B. Karunakar [(1993) 4 SCC 727 : 1993 SCC (L&S) 1184 : (1993) 25 ATC 704] should govern all cases where the complaint is not that there was no hearing (no notice, no opportunity and no hearing) but one of not affording a proper hearing (i.e., adequate or a full hearing) or of violation of a procedural rule or requirement governing the enquiry; the complaint should be examined on the touchstone of prejudice as aforesaid.

xxxxx

33………… (3) In the case of violation of a procedural provision, the position is this: procedural provisions are generally meant for affording a reasonable and adequate opportunity to the delinquent officer/ employee. They are, generally speaking, conceived in his interest. Violation of any and every procedural provision cannot be said to automatically vitiate the enquiry held or order passed. Except cases falling under — “no notice”, “no opportunity” and “no hearing” categories, the complaint of violation of procedural provision should be examined from the point of view of prejudice, viz., whether such violation has prejudiced the delinquent officer/employee in defending himself properly and effectively. If it is found that he has been so prejudiced, appropriate orders have to be made to repair and remedy the prejudice including setting aside the enquiry and/or the order of punishment. If no prejudice is established to have resulted therefrom, it is obvious, no interference is called for. In this connection, it may be remembered that there may be certain procedural provisions which are of a fundamental character, whose violation is by itself proof of prejudice. The Court may not insist on proof of prejudice in such cases. As explained in the body of the judgment, take a case where there is a provision expressly providing that after the evidence of the employer/government is over, the employee shall be given an opportunity to lead defence in his evidence, and in a given case, the enquiry officer does not give that opportunity in spite of the delinquent officer/employee asking for it. The prejudice is self-evident. No proof of prejudice as such need be called for in such a case. To repeat, the test is one of prejudice, i.e., whether the person has received a fair hearing considering all things…………”

53. Most of the Appellants have also taken up the argument that since the contravention against the individual Appellants is in terms of Section 42 of FEMA, which does not explicitly mention the word ‘Regulation’, the applicability of the said Section to these individual Appellants is questionable. We also note that for certain individual Appellants the Ld. AA has upheld the contravention of the provisions of FEMA in terms of Section 42 (2) yet for others the Ld. AA has upheld the vicarious liability in terms of Section 42 (1) of FEMA. The provisions of Section 42 of FEMA are as follows:

“42. Contravention by companies.—(1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, 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:

Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention.

(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section—

(i) “company” means anybody corporate and includes a firm or other association of individuals; and

(ii) “director”, in relation to a firm, means a partner in the firm.”

On reading of the Section, it is obvious that where a Company including its forms as mentioned in the Explanation to the Section, has committed a contravention then those who are responsible for running the Company, as well as those who have consented, connived or neglected shall be held liable to be proceeded against. The vicarious liability is provided for in this Section for the contravention committed by the Company. The question that has been raised is that since the Section speaks of contravention of the Act, or of any rule, direction or order made thereunder, without any mention, of Regulation, the provisions of Section 42 could not have been invoked against the aforementioned persons in the instant case where the Company (TMBL) has been made liable for the contravention of the provision of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 and of the provisions of other Regulations in the matter of the individual Appellant Shri Ranjan Ghosh.

54. Section 6 (3) (b), (f) and (j) of FEMA states the following:

“(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations, prohibit, restrict or regulate the following:

(a) transfer or issue of any foreign security by a person resident in India;

(b) transfer or issue of any security by a person resident outside India.

(f) deposits between persons resident in India and persons resident outside India.

(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred, –

i. by a person resident in India and owned to a person resident outside India; or

ii. by a person resident outside India”

In this regard, the relevant provision of Section 47 of FEMA are reproduced below:

“47. Power to make regulations.—(1) The Reserve Bank may, by notification, make regulations to carry out the provisions of this Act and the rules made thereunder.

(2) Without prejudice to the generality of the foregoing power, such regulations may provide for,—

(a) the permissible classes of capital account transactions, the limits of admissibility of foreign exchange for such transactions, and the prohibition, restriction or regulation of certain capital account transactions under section 6;

…………….”

Section 48 of FEMA brings out clearly that the Regulations notified by the RBI are to be placed before the Parliament in the manner in which the Rules are placed:

“48. Rules and regulations to be laid before Parliament.—Every rule and regulation made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation, or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation.”

The provisions of Section 47 of FEMA empower the RBI to make Regulations. Again, it is Section 6 (3) of FEMA under which the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000, the Foreign Exchange Management (Deposit) Regulations, 2000, and the Foreign Exchange Management (Guarantees) Regulations, 2000 were issued by RBI. It was vide the Notification No. FEMA 20/2000-RB, dated 03.05.2000 [GSR 406(E), dated 03.05.2000] that RBI in exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the RBI made the said Regulations to prohibit, restrict or regulate, transfer or issue security by a person resident outside India. Similarly, the Foreign Exchange Management (Deposit) Regulations, 2000 was issued vide Notification No. FEMA 5 /2000-RB dated 03.05.2000 [G.S.R. 388 (E)] and the Foreign Exchange Management (Guarantees) Regulations, 2000 was issued vide Notification No. FEMA 8/2000-RB, dated 03.05.2000 [GSR 391(E), dated 03.05.2000]. We therefore infer that even though the word Regulation has not been used explicitly in Section 42 of FEMA, the fact that the Regulations 2000 (supra) were notified under the provisions of FEMA, the contraventions of the Regulations have to be read with those of the statute of FEMA. Furthermore, the said Regulations would also have undergone legislative vetting as the Rules, a word which has been explicitly mentioned in the provisions of Section 42 of FEMA. Moreover, the penalty is imposed under Section 13 of FEMA, wherein the word Regulation has been explicitly used, so as to provide for imposition of penalty for the contravention of the provisions of any Regulation. It cannot be the intention of the legislature that a Company which is a legal entity and not a natural person can be liable for penalty for contravention of a Regulation, but those natural persons to whom such contraventions are attributable cannot be penalized because in the case of contraventions of Regulations, they cannot be held responsible.

55. While the provisions of Section 42 (1) of FEMA hold every person who was in-charge and was responsible to Company for the conduct of its business as vicariously liable for the contravention, the provisions of Section 42 (2) of FEMA require the contravention to occur with the consent or connivance or due to neglect of officers of the Company to hold such person as guilty of the contravention. Under Section 42 (1) of FEMA it is the onus on those responsible for the conduct of the affairs of the Company to prove that the contravention occurred without his knowledge or in spite of him having exercised due diligence to prevent such contravention. It is in the light of these provisions of the two sub-sections that the Ld. AA has made distinction in the invocation of either Section 42 (1) or Section 42 (2) against the individual Noticees (Appellants herein). While Shri M G M Maran has been made liable for penalty under Section 13 of FEMA by virtue of Section 42 (2), Shri G. Narayana Moorthy has been made liable for penalty by virtue of Section 42 (1) of FEMA. We also note that in the Impugned Order with respect to the first and the second set of issues, Ld. AA has invoked Section 42(1) of FEMA against only two individual Appellants namely Shri G. Narayana Moorthy and Shri A K Jagannathan. Both were the Managing Director and CEO of TMBL at the relevant points of time. The rest of the individual Appellants in these two sets of issues have been found vicariously liable for the contravention in terms of Section 42 (2) of FEMA. In the matter relating to the third set of issues the individual Appellant has been found vicariously liable for the contraventions in terms of Section 42 (1) of FEMA.

Consideration of First and Second Set of Issues

56. The first set of issues has arisen because the Board of TMBL approved the transfer and recording of 46,862 shares in the name of the entities which were not mentioned in the letter dated 30.03.2007 issued by the RBI in response to the applications forwarded to it. The Appellant has argued that the entities in whose name the transfer of shares were registered and approved by the Board of TMBL were not distinct from those approved by the RBI. The entities in whose name the shares were registered were wholly owned entities of those which had been approved by the RBI. The following table makes the picture clear:

Sl. No	Name of NRI/FI to whom NOC was granted by RBI	Name of NRI/FI in whose names shares were transferred by TMBL	No. of shares transferred	Details of Sterling Group Entity from whom shares purchased
1	Ravi S Trehan (NRI), 712, Fifth Avenue, New York, NY10019	RST Limited (wholly owned by Shri Ravi S Trehan)	2,845	Mrinalini Leasing and Finance Pvt Ltd.
2	Ramesh Vangal, NRI	Katra Holdings Ltd (wholly owned by Ramesh Vangal)	6,882	Mansiri Investment and Leasing Pvt. Ltd.
3	Ramesh Vangal, NRI	Katra Holdings Ltd (wholly owned by Ramesh Vangal)	3,482	Mrinalini Leasing andFinance Pvt. Ltd.
4	Rajat Kumar Gupta, NRI	GHI 1 Ltd (wholly owned by Rajat Kumar Gupta)	14,080	Mrinalini Leasing and Finance Pvt Ltd.
5	Kamehameha School	Kamehameha Mauritius Ltd.	2,025	Hemangini Finance and Leasing Pvt. Ltd.
6	Federal Insurance Company, New Jersey, USA	FI Investments (Mauritius) Ltd.	5,399	Hemangini Finance and Leasing Pvt. Ltd.
7	Cuna Mutual Group, Wisconsin, USA	Cuna Group (Mauritius) Ltd.	2,025	Hemangini Finance and Leasing Pvt. Ltd.
8	Swiss Re Partnership Holding AG- Switzerland	Swiss Re Investors (Mauritius) Ltd.	9,953	Mrinalini Leasing and Finance Pvt Ltd.
9	Swiss Re Partnership Holding AG-Switzerland	Swiss Re Investors (Mauritius) Ltd	171	Hemangini Finance and Leasing Pvt. Ltd.
	Total		46,862

Ld. Counsel for the Appellant TMBL argued that the letter dated 30.03.2007 did not contain anything that can be construed as refusal of permission for transfer of shares in the name of wholly owned entities of the approved Non-Residents Indians/Financial Institutions (NRI/FI). In this regard, Regulation 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 is clear as to not only prohibit issuing of any security to a person resident outside India, but also in prohibiting recording of such transfer of security. The proviso to the Regulation allows for such transfer and recording, only on being permitted by the RBI. For the purpose an application has to be moved to the RBI. While the application was moved and the permission was granted on 30.03.2007 by the RBI, we observe that the recording of transfer of 46,862 shares to entities other than those mentioned in the said letter of the RBI by the Board of TMBL is undisputed fact.

57. Ld. Counsel for the Appellant TMBL has attempted to justify the transfer of shares to the other entities by pointing out that such transfer came to the notice of the Hon’ble Bombay High Court twice which in turn caused consequent issuance of directions by the RBI. The issue which was looked at and for which directions were given related to bringing down the shareholding of an individual and connected parties to less than 5% of the paid-up capital of the TMBL. In the Writ Petition No. 2684 of 2008 filed before the Hon’ble High Court of Bombay by one Shri C. Kanakaraj challenging the aforementioned transfer of shares had resulted in Order dated 08.04.2009 of the Hon’ble High Court directing the petitioner to make a representation to the RBI which was required to be disposed of in a time bound manner. In pursuance of the said direction, the Executive Director of RBI passed an Order dated 12.10.2009 holding the entities as a Group and directing TMBL to seek acknowledgement of RBI for the transfer of shares, in pursuance of the Circular dated 03.02.2004. Shri Kanakaraj again approached the Hon’ble Bombay High Court vide Writ Petition No. 2319 of 2009 and the Hon’ble High Court vide Order dated 14.10.2010 directed the RBI to take appropriate decision with regard to the acknowledgment of holding of shares by the 18 entities identified by it as a Group. Resultantly the Deputy Governor of RBI passed an Order on 31.03.2011 of which Paragraph 25 of the Order is reproduced below (a copy thereof has been submitted by the Appellant as part of the Appeal Paper Book):

“As noticed above, substantial portion of the shares of TMBL are held in the ‘Project Windmill Escrow Account’ at SCB. The arrangement under which the shares are kept in the above Escrow account is not clear and lacks transparency. However, the available material indicates that a little below half of TMBL’s shares are under Escrow account with a foreign private equity firm, against which there are allegations of trying to wrest control over TMBL shares, having the discretion to source purchasers for the TMBL shares. Some of the sale transactions purportedly entered into by 3 foreign entities, 7 resident individuals / entities and submission made by a shareholder to a High Court in respect of 2 individuals indicate a possibility that the shares held in ‘Project Windmill Escrow Account’ are temporary holdings awaiting transfers to third parties. Under the circumstances, conducting due diligence exercise on the temporary shareholders would have no meaning. Further, the information available in respect of the foreign investors is either bare minimum or not satisfactory. In any case, the share transfers in favour of 7 foreign investors were in violation of FEMA provisions. Shareholding in respect of few of the resident investors would also require FED clearance due to receipt of foreign inward remittance towards advance consideration for purchase of TMBL shares. Further, some of the investors have either not provided any information towards the acknowledgement process or have not responded to the specific information sought by RBI. A few investors have also not been forthcoming in declaring details in respect of their transactions and made inconsistent statements to RBI regarding the source of funds and purchase of shares making it difficult to establish the source of funds for the transfer of shares.

Further, holding of shares by certain persons for further distribution to others, receipt of foreign inward remittances from third parties towards transfer of TMBL shares even in 2008 i.e. after the original transfers in May 2007 and transfer of such funds to an associate of another investor in the group, disputes relating to share transfers in spite of receiving consideration and yet not availing legal remedy to resolve the disputes and complaints and allegations of lodging of shares of a resident by a foreign investor before transfers have been effected by the bank, acquisition of shares by an associate of a foreign investor that is a shareholder as per the books of the bank, indicate that the matter is indeed very complex and that the investors have non-transparent dealings and agreements / understanding. The existence of allegations and counter allegations relating to subsequent transfer of shares and the transactions being declared only recently, in 2010, i.e. after 3 years from the date of foreign inward remittance in 2007, leaves a credibility gap in their submissions. On the whole, the transactions and the shareholding by these 18 investors is not inspiring confidence to the Regulator for granting acknowledgement.

In the circumstances, I do not consider that the investors mentioned in the order dated October 12, 2009 have satisfied the criteria fixed by RBI for acknowledgment purpose. Therefore, I have no other choice but to decline to acknowledge the holding of 5% or more of the paid up capital of TMBL by the group consisting of M/s RST Limited, Katra Holdings Limited, GHI Limited, Kamehameha Mauritius Limited, FI Investments (Mauritius) Limited, Cuna Group (Mauritius) Limited, Swiss Re-investors (Mauritius) Limited, Shri Gokul Patnaik, Vector Programme Private Limited, Shri P. S. Sathiyaseelan, Hemangini Finance and Leasing P Limited, Shanmuga Financial Services P Limited, Shri L Sridharan, Shri N Ganesan, Shri R. Chinnakannan, Smt. C Chandrammal, Shri M G M Maran and Shri M G Muthu. The Group holding in the aggregate should be below 5% of the paid-up capital of TMBL.”

On reading of this Order, it is obvious that the investors in whose names the shares had been transferred as approved by the Board of TMBL on 13.05.2007 had failed to satisfy the criteria fixed by RBI for acknowledgment purpose. The Appellant has pleaded that there was no difference between these investors and the entities which had been approved by the RBI in its letter dated 30.03.2007, since these investors were wholly owned subsidiaries of the said entities. In this Order it has been held that the share transfer in favour of seven foreign investors was in violation of FEMA provisions. Even as late as 2011 the investors could not satisfy the criteria for acknowledgment purpose, the argument that there was no distinction between the entities which had been approved by RBI and those to whom shares were transferred on approval of the Board of TMBL cannot therefore stand, on its legs.

58. Ld. Counsel for the Appellant TMBL has challenged the findings in the Impugned Order made in relation to the second set of issues arising from further transfer of 27,289 shares of TMBL out of 46,862 shares to the entities which were residents outside India. The Appellant Bank recorded the transfer of shares from M/s RST Ltd. and M/s Katra Holdings Ltd. to M/s Sub-Continental Equities Ltd. on 26.12.2011. The Appellant Bank TMBL further approved the recording for the transfer of shares from M/s GHI I Ltd. to M/s Robert and Ardis James Company Ltd. on 11.06.2012. The Appellant Bank TMBL has contended that the Regulation does not prohibit transfer of shares of an Indian entity between the residents outside India. It has also been claimed that to meet compliance to the Order dated 31.03.2011 of the Deputy Governor for reducing the shareholding for the entity as a Group to below 5% of the paid-up capital, it was imperative to divest the shareholding from the original foreign based entities to other foreign based entities. It has also been argued that the initial transfer was valid till the passing of the Impugned Order on 14.08.2020. Ld. Counsel contended that the applicability of the Master Circular No. 15/2011-12 dated 01.07.2011 on foreign investment was erroneously ruled out in the Impugned Order.

59. The general permission which is available to a person resident outside India to transfer shares held by it to any person resident outside India is by virtue of Regulation 9 of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000. Regulation 9 states the following:

“Transfer of shares and convertible debentures of an Indian company by a person resident outside India.

9. (1) Subject to the provisions of sub-regulation (2), a person resident outside India holding the shares or debentures of an Indian company in accordance with these Regulations, may transfer the shares or debentures so held by him, in compliance with the conditions specified in the relevant Schedule of these regulations.

(2) (i) A person resident outside India, not being a non-resident Indian or an overseas corporate body, may transfer by way of sale or gift the shares or convertible debentures held by him or it to any person resident outside India;

(ii) A non-resident Indian may transfer by way of sale or gift, the shares or convertible debentures held by him or it to another non-resident Indian only;

(iii) A person resident outside India holding the shares or convertible debentures of an Indian company in accordance with these Regulations,

(a) may transfer the same to a person resident in India by way of gift;

(b) may sell the same on a recognized Stock Exchange in India through a registered broker.”

Ld. AA has observed in Paragraph 6.9 of the Impugned Order the following:

“Since the acquisition of 46,862 shares of Noticee No. 1 bank in the names of seven non-resident entities itself was in contravention of the provisions of FEMA, 1999, subsequent transfer of shares totalling to 27,289 (out of those 46,862 shares) to M/s. Sub-Continental Equities Limited and Robert & Adris James Company Limited by M/s. Katra Holdings Limited, RST Limited and GHI I Limited is to be held in contravention of the provisions of FEMA, 1999. Hence, recording of transfer of 27,289 shares by Noticee No. 1 in the books of the Bank, in my view amounts to contravention of the provisions of Regulation 4 of Foreign Exchange Management (Transferor Issue of Security by a Person Resident outside India) Regulations, 2000, as alleged in the show cause notice.”

Reading of Regulation 9 of the Regulations 2000 (supra) makes it obvious that the person resident outside India holding shares of an Indian Company should be holding such shares in accordance with these Regulations. Since, M/s RST Ltd., M/s Katra Holdings Ltd. and M/s GHI I Ltd. held the shares which had been transferred to them despite there being no approval for them to do so by the RBI, the holding of such shares were in contravention of Regulation 4 of the Regulations 2000 (supra). Since, the initial holding was void ab initio the subsequent holding of such shares with the transfree resident outside India was also in contravention of FEMA provisions. We cannot accept the plea of the Appellant that the holding of such shares became vitiated only after passing of the Impugned Order on 14.08.2020. The transfer of the shares had occurred on 13.05.2007 on the basis of the approval granted by the Board of Directors of TMBL, which was not in consonance with the approval granted by the RBI vide its letter dated 30.03.2007. Hence, the transfer was vitiated right from 13.05.2007 and the Impugned Order dated 14.08.2020 merely confirmed through an adjudication process the contravention of the FEMA provisions in this regard. We have already cited the Order dated 31.03.2011 of the Deputy Governor of RBI wherein it has been categorically mentioned that the investors including the aforementioned three, had failed to satisfy the RBI criteria, so as to grant acknowledgment to the transfer of shares to them by the RBI. The Appellant cannot use that very Order of RBI to justify its recording of the subsequent transfer of 27,289 shares from the aforementioned three investors to other residents outside India. We have perused the Master Circular No. 15/2011-12 dated 01.07.2011 issued by RBI. Section 1 on Foreign Direct Investment in Paragraph 1 states the following:

“Foreign Direct Investment in India is:

– undertaken in accordance with the FDI Policy which is formulated and announced by the Government of India….

– governed by the provisions of the Foreign Exchange Management Act (FEMA), 1999. FEMA Regulations which prescribe amongst other things the mode of investments i.e. issues or acquisition of shares/ convertible debentures and preference shares, manner of receipt of funds, pricing guidelines and reporting of the investments to the Reserve Bank. The Reserve Bank has issued Notification No. FEMA 20/2000-RB dated May 3, 2000 which contains the Regulations in this regard. This Notification has been amended from time to time.”

It is clear that the Foreign Direct Investment in India was governed by the relevant provisions of FEMA. In this regard, the aforementioned Notification relates to the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000. On further perusal we reproduce the relevant portion of paragraph 8.B of the Circular:

“8.B Acquisition by way of transfer of existing shares by person resident outside India

8 B.I Foreign investors can also invest in Indian companies by purchasing /acquiring existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents / NRIs for acquisition of shares by way of transfer in the following manner:

…………………

d. Resident to Non-resident (Sale): A person resident in India can transfer by way of sale, shares/ convertible debentures (including transfer of subscriber’s shares), of an Indian company in sectors other than financial services sector (i.e. Banks, NBFC, Insurance, Asset Reconstruction Companies (ARCS), Credit Information Companies (CICs), infrastructure companies in the securities market viz. Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.) under private arrangement to a person resident outside India, subject to the pricing, reporting and other guidelines given in Annex 3. However, this general permission is not available in case of transfer of shares/debentures by gift from a Resident to a Non-Resident/Non-Resident Indian.

…………………

8.B. II Prior permission of the Reserve Bank in certain cases for acquisition / transfer of security

(i) The following instances of transfer of shares or convertible debentures from residents to non-residents by way of sale requires Reserve Bank approval:

a) Transfer of shares or convertible debentures of an Indian company engaged in financial services sector (i.e. Banks, NBFCs, ARCS, CICS, Insurance, Infrastructure companies in the securities market such as, Stock Exchanges, Clearing Corporations, and Depositories, Commodity Exchanges, etc.)…………………”

We observe that the RBI Master Circular No. 15/2011-12 dated 01.07.2011 reads in consonance with the provisions of FEMA and the Regulation 2000 (supra). The permission required from the RBI for transfer of shares of the Appellant Bank TMBL to the residents outside India has been reiterated in the aforementioned provisions of the said Circular. We have already discussed that recording of subsequent transfer of shares cannot be valid in view of initial transfer being in violation of Regulations, 2000 (supra).

60. Ld. Counsel for the Appellant Bank TMBL pleaded that thrice the Appellant moved the RBI for compounding of the said offence. However, on the first two occasions the compounding applications were rejected by the RBI on the grounds that the matter was being investigated by the Respondent Directorate and on the third occasion rejection was on the ground that the matter has already been adjudicated. We refrain from making any comments on the said pleadings in view of that such decision taken by the RBI are governed by the internal policy and norms. Ld. Counsel has also pleaded that the transferors and the transferees of the shares have not been made Noticees to the adjudication proceedings and the Appellant Bank TMBL did not benefit monetarily out of the said transfers. Hence, the penalty was not quantifiable. However, in the Impugned Order disproportionate penalty has been imposed on the Appellant Bank, as the offence was only technical or venial. Ld. Counsel cited the Judgment of Hindustan Steel Ltd. vs. State of Orissa [(1996) 2 SCC 627]. We observe that the offence for which penalty has been imposed has arisen from the approval by the Board of Directors of TMBL with respect to transfer and recording of its shares from the persons resident in India to person residents outside India, without the approval by the RBI. Such approvals were granted by the Board of the TMBL thrice on 13.05.2007, 26.12.2011 and 11.06.2012. These approvals by the Appellant Bank TMBL have been found in contravention of Regulation 4 of the Regulations 2000 (supra) issued under Section 6 (3)(b) of FEMA. The provisions of Section 13 of FEMA provide for penalty for the contravention of the statutory provisions of the Act and Regulations. We therefore do not find any lapse in the imposition of penalty on the Appellant Bank TMBL without making the transferor and the transferee as Noticees. Moreover, the amount of contravention follows from the value of shares which had been wrongly approved by the Board of TMBL. The argument that the contravention is not quantifiable is erroneous as certain number of shares of certain amount had not been approved to be transferred or recorded to certain persons residents outside India, without having been so permitted by the RBI. We do not agree that Appellant Bank TMBL is not liable for any penalty, in view of the offence on their part being technical in nature and the Judgment in the matter of Hindustan Steel Ltd. (supra). In this regard, the provisions of Section 13 (1) of FEMA are reproduced below:

“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.”

Thus, there is nothing in the Section which can indicate directly or indirectly requirement of mens rea. Words like “willful”, “deliberately”, “intentionally” etc. are missing. The Hon’ble Supreme Court in the Judgment dated 23.05.2006 in the matter of The Chairman, SEBI v. Shriram Mutual Fund, [(2006) 5 SCC 361] has held:

“35. In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not.”

The Judgment (supra) in the matter of SEBI cited the Judgment in Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors. [MANU/SC/0300/1996] wherein even for FERA 1947 it was held that the contravention shall be breach of a civil obligation which would attract penalty irrespective of the fact whether the contravention was made with any guilty intention or not. The Judgment (supra) in the matter of SEBI, also cited a number of previous Judgments wherein it was held that mens rea is not an essential element for imposing penalty for breach of civil obligations. The Judgment (supra) has clarified that the case of Hindustan Steel Ltd. vs. State of Orissa [(1969) 2 SCC 627] pertained to criminal/quasi criminal proceeding as the provisions of the Act under consideration in that case imposed a punishment of imprisonment and fine as well. The present appeal deals with provisions which are strictly civil obligations and penalty for the contraventions of these provisions are imposable under Section 13 of FEMA which provides for penalty only, up to thrice the sum involved in such contravention. We therefore find that the contravention of Regulation 4 of the Regulations 2000 (supra) read with Section 6 (3) (b) of FEMA is established and the Appellant Bank TMBL is liable for penalty.

Consideration of Cases of Individual Appellants

61. The Appellant Shri M G M Maran was the Chairman of TMBL when the Board of the Appellant Bank had approved the transfer of shares to the entities in contravention of Regulation 4 of the Regulations 2000 (supra) read with Section 6 (3)(b) of FEMA. The arguments of the Appellant with regard to inordinate delay, issuance of SCN on the next date of filing of the Complaint and investigation being lopsided have already been disposed of in Paragraph 52 of this Order. The Appellant has pleaded that he was part time Non-Executive Chairman and had taken over only a few days before the impugned transactions. Moreover, the decision of the Board of TMBL was a recommendation and therefore the contravention if any was technical in nature. We have already held that the Appellant Bank TMBL had contravened the Regulation and the FEMA. We have also rejected the plea that the contravention was technical in nature and hence no penalty is imposable. With regard to plea of the Appellant that he was part time Non-Executive Chairman. In this regard, we note the following findings made by the Ld. AA in Paragraph 6.16 of the Impugned Order:

“As already observed, I notice from the annexure 1 to the letter dated 04/12/2006 of Noticee No. 2 and (late) B. Ramachandra Adityan written to RBI, there was no mention of the persons resident outside India acquiring shares in the names of their wholly owned subsidiaries. RBI vide letter dated 30/03/2007 referred to this letter dated 04/12/2006 and granted approvals in the names that figure in Annexure 1 to that letter. Despite knowing well that he (Noticee No.2) had not applied to RBI in the names of entities in whose names the proposal for registration of shares was proposed to be done in the Board Meeting dated 13/05/2007, Noticee No. 2 approved it. Having voted in the board for approving the proposal to register the transfer of shares in the names of RST Limited (wholly owned by Shri Ravi S. Trehan), M/s. Katra Holdings Limited (wholly owned by Shri Ramesh Vangal), M/s. GHI I Limited (wholly owned by Shri Rajat Gupta), M/s. Kamehameha (Mauritius) Limited, M/s. FI Investments (Mauritius) Limited, M/s. Cuna Group (Mauritius) Limited, M/s Swiss Re Investors (Mauritius) Limited, despite the RBI letter dated 30/03/2007 having been furnished to all the Directors, who attended the Board including Noticee No.2, as Annexure-Q along with Board Note, Noticee No. 2 cannot plead that he was not responsible for the transfer of shares in the names other than ones approved by RBI.”

This factual finding made in the Impugned Order cannot be questioned in the absence of anything contrary produced by the Appellant. The Appellant had not only filed application to the RBI for the transfer of shares, but also cannot deny that the actual transfer approved by the Board of TMBL of which he was also part of as Chairman, were of the entities which had not been approved by the RBI in its letter dated 30.03.2007. It is also to be noted from Paragraph 25 of the Order dated 31.03.2011 of the Deputy Governor of RBI, as cited in Paragraph 57 of this Order, that the Appellant Shri M G M Maran failed to satisfy the criteria fixed by the RBI for acknowledgment purpose of his holding of shares of TMBL. We therefore find him liable for penalty for the aforementioned contraventions in terms of Section 42 (2) of FEMA.

62. The Appellant Shri G Narayana Moorthy pleaded that he did not play any active role and was under bona fide belief that the recording of transfer of 46,862 shares was in order. He also pleaded that the amount of contravention was not quantifiable and the penalty imposed has been disproportionate. Ld. Counsel for the Appellant argued that Section 42 of FEMA is not applicable to the contravention of Regulations. We note the following findings in Paragraph 6.18 of the Impugned Order:

“6.18………… It is seen from Board Note dated 13.05.2007 prepared for the Board Meeting held on 13.05.2007 to consider the registration of transfer of 95,418 shares (33.53%) of the Bank sold by certain individuals in the year 1994 the registration of which remain pending (which included the proposal to consider registration of 46,862 shares in the names of seven non-resident entities), which has been furnished as Annexure 5 to the reply dated 05.05.2015 of Noticee No. 1. I find the Board Note to be signed by Noticee No. 14 in his capacity as Company Secretary and countersigned by Noticee No.3 in his capacity as Managing Director & CEO of Noticee No. 1 bank and the note was placed before the Board………

……… Having stated so, I find that at paragraph 15 (page 5) names of entities other than the ones approved by RBI vide letter dated 30.03.2007 is found mentioned. This indicates that Company Secretary i.e. Noticee No. 14 and Managing Director viz. Noticee No. 3 did not present the factual position regarding the correct names for whom RBI granted it’s no objection for transfer of shares by way of sale. Along with Board Note in addition to certain other documents, copy of the RBI letter dated March 30, 2007 according no objection under FEMA for the proposed transfer of 46,862 shares in the names of person resident outside India was annexed as “Annexure-Q”. It is settled proposition in law that Managing Director by virtue of the designation he or she holds in the Company would admittedly be in charge of a company and is responsible for the conduct of the business of the company………

……… The Board Note signed by him clearly shows that factual position was not submitted by him and the Company Secretary i.e. Noticee No. 14 to the Board. The fact that Noticee No. 1 bank recorded in its books the transfer of shares to seven foreign entities, whose names were not approved by RBI vide their letter dated 30.03.2007 cannot be denied. I also find that copy of the RBI letter dated March 30, 2007 according no objection under FEMA for the proposed transfer of 46,862 shares in the names of person resident outside India was annexed as “Annexure-Q”. Noticee No.3 cannot be oblivious of the same. It was his bounden duty as Managing Director of Noticee No. 1 bank to have seen that resolutions were passed in the Board after complying with all stipulations under applicable law……… “

There is a clear finding by the Ld. AA in the Impugned Order that the Appellant had counter signed the Board Note prepared for the Meeting of the Board of Directors of TMBL held on 13.05.2007. At Paragraph 15 (page 5) names of entities other than the ones approved by RBI vide letter dated 30.03.2007 are found mentioned. The copy of the RBI letter dated 30.03.2007, which had granted no objection under FEMA for the proposed transfer of 46,862 shares in the names of person resident outside India was annexed as “Annexure-Q”. It is therefore not convincing to accept that the Appellant exercised all due diligence to prevent such contravention by pointing out the said facts to the Board. Having counter signed the Note, he also cannot claim that contravention occurred without his knowledge. The Appellants therefore failed as Managing Director and CEO of TMBL being in-charge of the Company to conduct its business with regard to the transfer/recording of 46,862 shares of TMBL, in accordance with the provisions of the Regulations 2000 (supra). His other arguments regarding the contravention not being quantifiable and penalty being disproportionate have already been dealt with in Paragraphs 52 and 60 of this Order. We concur with the conclusion of the Ld. AA that the Appellant was liable for penalty for the aforementioned contraventions in terms of Section 42 (1) of FEMA.

63. Ld. Counsel for the Appellants Shri R Kannan Adityan, Shri A Rajagopalan, Shri V. Bhaskaran, Shri P H Arvind Pandian, Shri P Prem Vetty, Shri A Narayanan, Shri N Balasubramanian, Shri A Selva Ghosh and Shri S. T. Kannan has pleaded that they were not liable for any penalty being Non-Executive independent Directors.

Moreover, Shri S T Kannan was the RBI Nominee Director. Since they were appointed under the provisions of Section 10A of the Banking Regulation Act, 1949, the Appellants have argued that their presence in the Board was to enable the Bank to benefit from their expertise and they had no role to play in the business of the Bank. Besides raising certain other issues relating to preliminary objection like inordinate delay which we have already dealt with in Paragraph 52 of this Order, the Appellants stated that they acted in good faith in accordance with the portrayal of the picture by the Management in the Board Meeting. The Appellants have also pointed out that the SCN failed to specify the role of each of the individual Appellant. Ld. Counsel for the Appellants argued that Section 42 (2) imposes an additional burden on the Respondent Directorate to prove that the contravention occurred with the consent/connivance/negligence of the individual Appellants.

64. We observe that the case of individual Appellants has been discussed by the Ld. AA in the Impugned Order. Relevant portions of Paragraphs 6.20 and 6.24 of the Impugned Order are reproduced as follows:

“6.20……… I am of the view that being independent non-executive director in the Board, Noticee No. 4 to Noticee No. 11 ought to have gone through the Board Note relating to the Board Meeting dated 13/05/2007 and annexures to the Board Note more carefully, which included the RBI letter dated 30/03/2007. Had they been more vigilant, the fact that Board Note recommends transfer of 46,862 shares from persons resident in India to seven overseas entities, which were not mentioned in the RBI’s letter dated 30/03/2007 could have been noticed and at least attempt to question, if not stalling the move could have been initiated. But Noticee No.4 to Noticee No. 11 failed in their duty. Since Noticee No. 1 bank was not having any share transfer committee at the relevant point of time, approval of Board was being sought for registering the transfer of shares in particular names. Everything boiled down to whether the Board was going to approve the resolution or not. The fact that the resolution was passed unanimously to register the shares in the names of Shri Ravi S. Trehan (NRI), New York through his wholly owned company M/s. RST Limited, Shri Ramesh Vangal (NRI) through his wholly owned company M/s. Katra Holdings Limited, Shri Rajat Kumar Gupta (NRI) through his wholly owned company M/s. GHI I Limited, M/s. Kamehameha School through its wholly owned subsidiary viz. Kamehameha (Mauritius) Limited, M/s. Federal Insurance Company, USA through its wholly owned subsidiary company viz. F.I. Investments (Mauritius) Limited, M/s. Cuna Mutual Group, Wisconsin, USA through its wholly owned subsidiary company M/s. Cuna Group (Mauritius) Limited and M/s. Swiss Re Partnership Holding A.G- Switzerland through its wholly owned subsidiary company M/s. Swiss Re Investors (Mauritius) Limited, which names were not the approved ones by the RBI in their letter dated 30/03/2007, cannot be denied. Their respective belief that the transfer was being effected as per RBI approval is found wrong on the facts. Independent directors were not expected to act as rubber stamp for any proposal put up by the Board, without proper scrutiny of the proposal and related documents………

……… Here on the facts of this case and also in the submissions of Noticee No. 4 to Noticee No. 11, I do not find that they had discharged the burden that they had not consented to the resolution or that they were not negligent in their duties. Merely pointing fingers at Managing Director and Company Secretary is not sufficient enough defence to escape from the consequences of the act of Noticee No. 4 to Noticee No. 11 in voting for the resolution. Noticee No. 4 to Noticee No.11 cannot argue that they would attend a Board meeting, vote for a resolution without proper due diligence, but if a contravention occurs out of passing of the resolution, they should not be responsible for the contravention. The plea of the Noticee No. 4 to Noticee No. 1, that no discussion took place during the meeting, if true, is even more damaging to their cause. To be held in responsible for contravention of the provisions of FEMA, 1999, Noticee No.4 to Noticee No. 11 need not be in charge of and was to be responsible for the conduct of the Noticee No.1 bank. Their conduct in approving the board resolution as above can amount to consent and/or neglect………………..

6.24……… I find that Noticee No. 13 was an RBI nominee Director in the Board just like Noticee No. 12. As RBI nominee director, he should have exercised greater due diligence in comparing the Board Note dated 13/05/2007 with the letter dated 30/03/2007 of the Reserve Bank of India granting permission in particular names and red flags. When a Board resolution is passed unanimously, as in this case, all the directors are equally responsible for any contravention that arises out of passing of such resolution. But being nominee director of the Reserve Bank, I am of view that his contribution to this decision should be viewed in a higher plane. I find page 5 of the Board Note dated 13/05/2007 contains the names of seven transferees whose names are clearly different from the names contained in the permission letter dated 30/03/2007 of the RBI, which was stated to be enclosed as “Annexure Q” along with the Board Note dated 13/05/2007 for the consideration the Board. For reasons best known, all the directors who were present in the Board including Noticee No. 13, passed the Board Resolution allowing recording of transfer of shares in the names of seven non-resident entities, which were not approved by Reserve Bank of India, unanimously without due diligence. Due to lack of due diligence on the part of Noticee No. 13 and other directors, entities which were not approved by RBI got rights associated with ownership of shares………

………….I find that even though the word “regulation” is not mentioned in Section 42 OF FEMA, 1999 that in itself will not be bar in imposing penalty on a person who contravened the Regulations under FEMA, 1999 in terms of Section 13 (1) of FEMA, 1999. All the Regulations under FEMA, 1999 are issued under one or other provisions of the Act itself. Violation of the provisions of Regulations, in my view will amount to violations of the corresponding provisions of the Act under which the Regulations were issued by the Reserve Bank of India in the first place. Under the provisions of Section 42 (2) of FEMA, 1999, even if a director is not in-charge of and was not responsible to the conduct of the company, then also such person can be deemed to be guilty of the contravention committed by the company, if it is proved that the contravention had taken place with the consent or connivance of or is attributable to any neglect on the part of any such director, manager, secretary or other officer of the company ……… ”

We observe that the individual Appellants have been held liable for penalty by virtue of their vicarious liability arising from the provisions of Section 42 (2) of FEMA. Therefore, it is not by the virtue of the position that they have been deemed to be guilty of the contravention of the Regulations 2000 (supra) read with the provisions of FEMA, but it has been demonstrated that by their neglect of going through the Board Note and in particular the copy of the letter dated 30.03.2007 of the RBI that they consented to pass the resolution of the Board of TMBL to allow transfer of its shares to the residents outside India which had not been permitted by RBI. With respect to the Appellant Shri S T Kannan, the RBI Nominee Director the neglect to peruse the Board Note and the Annexure Q to it shows that he joined the bandwagon culminating in the approval by the Board of transferring and recording shares of TMBL to residents outside India which have not been permitted by RBI. While their expertise would be of value in the conduct of the affairs of the Company, they did fail to exercise necessary caution of passing a resolution in accordance with law in a Board Meeting in which they participated. We thus find these individual Appellants as liable for penalty under Section 13 (1) of FEMA by virtue of their vicarious liability for the contravention of the Regulation, 2000 (supra) in terms of Section 42 (2) of FEMA.

65. The last of the Appellant Shri K K Sharma in the matter arising out of the first set of issues, besides taking pleadings which have been raised by the other Appellants that have already been dealt with in the preceding Paragraphs of this Order, we note that the Appellant has also argued that being Company Secretary he had not given any recommendation and approval during the Board Meeting on 13.05.2007. In this regard, the findings made in Paragraph 6.26 of the Impugned Order are worth the read:

“6.26……… I find the Board Note to be signed by Noticee No. 14 in his capacity as Company Secretary and countersigned by Noticee No.3 in his capacity as Managing Director & CEO of Noticee No. 1 bank and the note was placed before the Board………

……… In paragraph 26 of the note it has been mentioned that in terms of the provisions contained in the Foreign Exchange Management Act, 1999 read with Regulations framed therein prior permission of the Reserve Bank of India is required for transfer of shares from a person resident in India to a person resident outside India………

……… I find that at paragraph 15 (page 5) names of entities other than the ones approved by RBI vide letter dated 30/03/2007 is found mentioned. This indicates that Company Secretary i.e. Noticee No. 14 and Managing Director viz. Noticee No. 3 did not present the factual position regarding the correct names for whom RBI granted its no objection for transfer of shares by way of sale. As a Company Secretary, it was his duty to see that recording of transfer of shares were done in terms of permission granted by RBI vide its letter dated 30/03/2007. But I find that the Board Note prepared by him itself was misleading. I am of the view that conduct of Noticee No. 14 in board meeting held on 13/05/2007 amounts to consent and or/negligence and hence, I am of the view that Noticee No. 14 had contravened the provisions of Regulation 4 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, issued under the provisions of Section 6 (3) (b) of FEMA, 1999, to the extent of Rs. 113,32,16,884/- in terms of Section 42 (2) of FEMA, 1999.”

It follows from the aforementioned portions of the Impugned Order that certain facts relating to the Appellant are undisputed and documentary based. In view of the aforementioned, we find the Appellant Shri K K Sharma liable for penalty under Section 13 (1) of FEMA by virtue of his vicarious liability arising in terms of Section 42 (2) of FEMA for the contravention of the Regulation 2000 (supra).

66. We have already discussed that the contravention of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 with respect to the second set of issues has been established in Paragraphs 58, 59 and 60 of this Order. The Appellant Shri B Prabaharan who was Chairman of TMBL at the time when the subsequent transfer of 27,289 shares were recorded by the TMBL in the meetings of its Board on 26.12.2011 and 11.06.2012, pleaded that in view of the Order dated 31.03.2011 of the Deputy Governor of RBI and the legal opinion given to Sub-Continental Equities Ltd., he had voted for approval of the recording of subsequent transfer of the shares. In the aforementioned Paragraphs of this Order, we have already rejected the argument that the subsequent transfers of shares had to be done so as to comply with the Order dated 31.03.2011 of the Deputy Governor of RBI. Ignorance of law cannot be the reason for non-compliance to the provisions of law. The other pleas regarding inordinate delay, contravention not being quantifiable and Section 42 being not applicable to Regulation have all been disposed of by us in the preceding Paragraphs of this Order. A finding has been made in the Impugned Order that in the Board meeting held on 26.12.2011 and on 11.06.2012 for the recording of transfer of shares in the name of M/s Sub-Continental Equities Ltd. and M/s Robert & Adris James Company Ltd. respectively, the Appellant Shri B Prabaharan voted in favour of the two resolutions. We have already held that the TMBL has contravened Regulation 4 of the Regulations 2000 (supra), even with respect to the recording of transfer of shares approved by the Board on 26.12.2011 and 11.06.2012 since the initial transfer of shares in the names of M/s RST Ltd., M/s Katra Holdings Ltd. and M/s GHI I Ltd. were void ab initio. We therefore find the Appellant Shri B Prabaharan liable for penalty under Section 13 (1) of FEMA by virtue of the vicarious liability arising from the provisions of Section 42 (2) of FEMA.

67. The Appellant Shri A K Jagannathan then Managing Director and CEO of TMBL has taken the plea that he abstained from expressing any view during the Board Meeting held on 26.12.2011 and was no longer part of the TMBL on 11.06.2012. He therefore, besides the arguments taken by other Appellants which we have already disposed of in preceding Paragraphs of this Order, pleaded that he is not liable for any penalty particularly since three other Directors who had dissented from the Board had not been penalized. For the appreciation of the role of Shri A K Jagannathan, we cite Paragraph 6.29 of the Impugned Order:

“6.29 I find that the issue of Noticee No. 16 is different from the rest of the Directors. His main plea is that he had joined the bank on 23.9.2010 as MD & CEO and left the bank on 12.5.2012 and during the board meeting held on 26.12.2011, he had abstained from expressing any view on the share transfer under reference. I find that Noticee No.1 in their letter dated 04/06/2014 addressed to the Directorate of Enforcement, Bangalore, furnished extract of the minutes of the board meeting held on December 26, 2011 relating to transfer of 13,209 shares in the name of M/s. Subcontinental Equities Limited and the extract of the minutes of the board meeting held on June, 11 2012 relating to transfer of 14,080 shares of the Noticee No. 1 bank in the name of M/s. Robert & Ardis James Company Limited, Mauritius. In the meeting of the Board held on 26/12/2011, Noticee No. 15, Noticee No. 16, Noticee No. 17 (since deceased), Noticee No. 18, Noticee No. 19, Noticee No. 20, Noticee No. 21, Noticee No. 22, Noticee No. 23, S/Shri S.C. Sekar, S.R. Aravind Kumar and P. Mahedravel participated in their capacity as Directors of Noticee No. 1 bank. Noticee No. 1 intimated that as on 26/12/2011, there was no Company Secretary. In the meeting it was resolved to permit the registration of transfer of 13,209 shares in the name of M/s. Subcontinental Equities Limited. Noticee No. 16 abstained from expressing any view. S/Shri S.C. Sekar, S.R. Aravind Kumar and P. Mahedravel dissented. Hence, even as per documents it is clear that Noticee No. 16 abstained from voting and he is seeking parity with those who dissented. I am of the view that as Managing Director, by abstaining from voting he cannot escape from his responsibility on this issue. As Managing Director, he should have guided the bank in legally sound manner. He ought not to have laid himself back by saying that he would go by the decision of the Board. Managing Director by very designation he holds is deemed to be responsible for the day to day affairs of the company. Noticee No. 16 was the Managing Director and Chief Executive Officer of Noticee No. 1 during the relevant period. As already pointed out Managing Director by virtue of the office he is holding in a company is deemed to be responsible for day to day conduct of the company and deemed to be in charge of and responsible to the conduct of the company. In terms of Section 42(1) of FEMA, 1999, a Managing Director can escape from vicarious liability if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent the contravention. I am of the firm view that the conduct of Noticee No. 16 in abstaining from voting during Board Meeting held on 26/12/2011 can in no way be termed that the contravention had taken place without his knowledge and that he exercised all due diligence to prevent the contravention. Therefore, he cannot equate himself with the directors who dissented with the decision of the Board to record the transfer of shares in the name of M/s. Sub-Continental Equities Limited and seek parity and immunity from imposition of penalty. He is indeed responsible for the contravention of the provisions of FEMA, 1999 in respect of recording of 13,209 shares in the name of M/s. Sub-Continental Equities Limited valued at USD 2,20,27,831.56 (equivalent to Rs.90,31,41,094/-approximately) in terms of Section 42 (1) of FEMA, 1999.”

It cannot therefore be denied that Shri A K Jagannathan failed to exercise his role as Managing Director and CEO of TMBL to examine the implications of the Board Note for the Meeting on 26.12.2011. He failed to exercise due diligence to prevent the contravention in spite of the knowledge about what was proposed to be approved by the Board. His role becomes contrasting in view of the dissent of the other three members of the Board. We therefore hold him liable for the penalty under Section 13 (1) by virtue of his vicarious liability arising out of provisions of Section 42 (1) of FEMA.

68. In the Impugned Order the Appellants Shri S. Sundar (Director of TMBL), Shri P. Yesuthasen (Director of TMBL), Shri A. Shidabaranathan (Director of TMBL), Shri K. N. Rajan (RBI Nominee and Director of TMBL) and Shri K V Rajan, (RBI Nominee and Director of TMBL) have been found guilty of the contravention of Regulation 4 of the Regulations 2000 (supra) read with Section 6 (3) (b) of FEMA in terms of the provisions of Section 42 (2) of FEMA. It has been further found in the Impugned Order that these Appellants had voted in favour of the two resolutions passed by the Board on 26.12.2011 and on 11.06.2012, allowing recording of subsequent transfer of shares of TMBL to residents outside India from those residents outside India in whose name the transfer of these shares were void ab initio. These Appellants have taken the same plea of not having been part of TMBL on 13.05.2007, subsequent transfer having been allowed to meet compliance to the Order dated 31.03.2011 of the Deputy Governor of RBI, the contravention being not quantifiable, there being inordinate delay in completion of proceedings and the provisions of Section 42 being not applicable to the contravention of the Regulation. We have in the preceding Paragraphs of this Order dwelt at length on each of these pleadings. We therefore find nothing before us as to contradict the factual content with respect to these Appellants, having participated and voted in the Board Meetings held on 26.12.2011 and on 11.06.2012 in favour of the resolutions. Since in both the meetings Shri S R Arvind Kumar, Shri S C Sekar and Shri P Mahendravel, Directors dissented with the decisions on the ground that no permission had been granted to M/s GHI I Ltd., M/s RST Ltd. and M/s Katra Holdings Ltd. to hold the shares of TMBL, as well as the matter being under investigation of the Respondent Directorate, the plea of the Appellant Directors that they did not consent and/or were not negligent cannot be accepted. We therefore hold these Appellant Directors as liable for penalty under Section 13 (1) of FEMA in terms of the aforementioned contravention read with the provisions of Section 42 (2) of FEMA.

69. With respect to the Appeal filed by the Appellant Shri Deepak C S, who was the Company Secretary of TMBL as on 11.06.2012 when the Board Meeting was held to approve the registration of transfer of 14,080 shares in the name of M/s Robert and Ardis James Company Ltd. Besides taking objections which have been taken by other individual Appellants, Shri Deepak C S has contended that he exercised due diligence in his role as Company Secretary and he was not involved in any decision-making process in the Board Meeting held on 11.06.2012, and also, he did not have any right to vote. The other points relating to preliminary objections have already been disposed of by us in the preceding Paragraphs of this Order. With respect to the pleading of Shri Deepak C S regarding his limited role as Company Secretary, we make note of the following finding in Paragraph 6.31 of the Impugned Order:

6.31……… I also notice from the board note dated 08/06/2012 on “agenda 5” of the above issue, which was signed by Noticee No. 24 also, that M/s. GHI I Ltd had been shown as the name that has been approved by RBI from FEMA angle and that registration was done in the books of Noticee No.1 in the name of M/s. GHI I Ltd (subsidiary owned by Shri Rajat Gupta), which is totally wrong as the permission of the RBI was granted to transfer the shares by way of sale in the name of Shri Rajat Gupta only and not in the name of M/s. GHI I Ltd……… “

This finding clearly shows that the Appellant Shri Deepak C S was negligent in putting-up of the Board Note dated 08.06.2012. We therefore hold him liable for penalty under Section 13 (1) of FEMA in terms of the vicarious liability of his arising from the provisions of Section 42 (2) of FEMA.

Consideration of Third Set of Issues relating to SCB

70. The third set of issues involving SCB and its Officer Shri Ranjan Ghosh have emanated from the following:

a) The Appellant SCB, Mumbai had allegedly opened Escrow Account which had been used to deposit certain monies and certain shares without the approval of the RBI.

b) The Appellant had opened SCB Project Windmill (Sale Consideration) Escrow Account which was used for depositing Rs. 113,32,16,884/- on 14.05.2007, as inward remittances from M/s SCB Mauritius towards purchase of shares of TMBL by 7 Foreign Investors which had not been approved by the RBI in its letter dated 30.03.2007. On the same day the amount was transferred to the Sellers of the TMBL shares, and for that purpose these shares were kept in the SCB Project Windmill (Shares) Escrow Account for transfer to the Foreign Investors. Both these accounts were allegedly opened in contravention of Regulation 3 of the Foreign Exchange Management (Deposit) Regulation 2000, since at that point in time prior approval of RBI was required to open Escrow Account.

c) Allegedly the Appellant by undertaking the transaction of taking physical control of TMBL shares belonging to M/s RST Ltd. and M/s GHI I Ltd. through the Non-Disposal Undertaking and Power of Attorney Structures had the effect of guaranteeing the debt of M/s SCB Mauritius owed by M/s RST Ltd. and M/s GHI I Ltd. Moreover, allegedly the Appellant Bank SCB became the security agent for taking physical possession of the title deeds to the properties in India which were offered as security by M/s Katra Holdings Ltd. to SCB, Mauritius. These transactions were in contravention of Regulation 3 of the Foreign Exchange Management (Guarantees) Regulations 2000.

We find that the Ld. Counsels for the Appellant SCB and its Officer, the individual Appellant, have raised the preliminary objections, in line with those raised by the other Appellants, which we have already discussed in Paragraphs from 50 to 55 of this Order. Accordingly, we also dispose of the objections raised by the Appellant SCB and the individual Appellant. The aforementioned Paragraphs apply mutatis mutandis to the preliminary objections raised by the Appellants SCB, Mumbai and its Officer.

71. Ld. Counsel for the Appellants have pleaded that the RBI had in fact given the prior approval for transfer of shares vide its letter dated 30.03.2007 and hence to complete the approved transactions the SCB, Mauritius had to setup an Escrow arrangement. The Appellant was merely a sub-agent of SCB, Mauritius since the shares were in India along with its sellers. As a sub-agent it was required to act on the instructions of SCB, Mauritius. It was SCB, Mauritius which had privity of contract with Arranger and Corsair Investment LLC for identification of the purchasing entities. It was emphasized that M/s SCB, Mauritius acted as Escrow and Transaction Settlement Agent while the Appellant had the role and responsibility of a sub-agent. Ld. Counsel also stated that it is for the convenience sake that the accounts were labelled as Escrow Accounts. The Appellant argued that as a sub-agent the Appellant had informed TMBL vide letter dated 12.05.2007, requesting TMBL to transfer shares to 7 Foreign Investors whose names were not in fact approved by RBI whereas on the same day SCB, Mauritius had written a letter to the transferers of the TMBL shares to confirm the sale of TMBL shares in favour of Foreign Investors whose names were approved by RBI. The explanation given by the Appellant was that they as sub-agent acted on instructions. The contention made was that the Appellant wrote to TMBL as custodian for the financial institutions, while SCB, Mauritius wrote to the transferors as an Escrow Agent.

72. The Appellants have challenged the Impugned Order on the grounds that there was no contravention of the Deposit Regulation 2000 since the account opened was a current account and not an Escrow Account. The money that flowed into the account on 14.05.2007 was transferred out of the account on the very same day. Moreover, the share account cannot be termed as deposit account since the only deposit therein was of physical shares without any money having been deposited. The Appellant stated that no security of immovable property was ever taken. No share was ever claimed to have been pledged. In view of that it was wrong presumption that the shares constituted collateral or guarantee for the loans advanced by SCB, Mauritius to M/s GHI I Ltd., to RST Ltd. and to M/s Katra Holdings Ltd. The Appellant contended that the irrelevant and unrelated language in Paragraph 3.1 (b) (i) of the banking facility letter was misinterpreted in the Impugned Order. Ld. Counsel for the Appellant stated that therefore no charge could be made out against the Appellant. Moreover, any shares that were deposited by Katra in the share account was as a condition of draw down of the loan of USD 20 Million and for onward transfer of shares to the relevant purchasers. No security interest was furnished to SCB, Mauritius which is also clear since SCB, Mauritius did not liquidate the shares of TMBL when Katra defaulted on the said loan. The Appellant also contended that it is only the issuer of the guarantee who can be charged. The Appellant argued that an agent cannot be held vicariously liable for the acts of its principal. The Appellant challenged the calculation of the amount involved in the contravention. The individual Appellant Shri Ranjan Ghosh has challenged the Impugned Order on the grounds that he was head of Financial Institutions Group of SCB, Sub-Division of the Origination and Client Coverage Unit of SCB. He had exercised due diligence. He reiterated the arguments made by the Appellants SCB and prayed for reducing the penalty.

73. We find that the allegations and the charges have been dealt with comprehensively in the Impugned Order taking into account the replies filed by the Appellant SCB, Mumbai and the individual Appellant. Ld. AA has also commented upon a number of documents furnished by the Appellants during the proceedings of adjudication. We therefore are citing certain relevant portions of the Impugned Order at length. In Paragraph 6.54.3 of the Impugned Order the role of the SCB, Mumbai and the manner in which it was played out are revealed from the following portions of the Paragraph:

“6.54.3………….. As already observed, of the documents furnished by Shri Jaydeep Jayakar, I find there was a letter dated 12 May, 2007 of M/s. Standard Chartered Bank (Mauritius) Limited, Mauritius addressed to Noticee No. 25, wherein it has been mentioned that they (M/s. Standard Chartered Bank (Mauritius) Limited) had been appointed as Escrow and Transaction Settlement Agent in terms of an Escrow and Transaction Settlement Agreement on 30 March, 2007 (“Original Agreement”) executed between Arranger, Corsair and M/s. Standard Chartered Bank (Mauritius) Limited as the Escrow and Transaction Settlement Agent as amended by an Amended And Restated Escrow And Transaction Settlement Agreement (hereinafter referred to the “Agreement”) dated 12 May 2007 entered into by and amongst Katra Holdings Limited, Corsair Investments LLC, Standard Chartered Bank (Mauritius) Limited, Broadstreet Group LLC and GHI I Limited. In terms of the Agreement, they (M/s. Standard Chartered Bank (Mauritius) Limited) appointed M/s. Standard Chartered Bank, Fort, Mumbai (Noticee No. 25) as their sub agent with the authorization and instruction to open:

a. INR denominated account titled “SCB Project Windmill (Sale Consideration) Escrow Account” in the nature of non-interest bearing current account (“INR Account”) for remitting sale consideration payable from time to time in accordance with the terms of the Agreement;

b. An escrow/safekeeping account titled “SCB Project Windmill (Shares) Escrow Account” to hold physical Escrow Shares and Transfer Deeds of equity shares in Tamilnad Mercantile Bank Limited, a scheduled bank having it registered office at No. 57, VE Road, Thoothukudi 628002, India (the “Bank”) (the “Share Account”)

c. And further, to do such acts, deeds and sign such documents, letters as advised/ instructed by them (M/s. Standard Chartered Bank (Mauritius) Limited) from time to time.

……………. I also observe from the Banking Facility Letter dated 29/12/2006 addressed to M/s. Katra Holdings Limited, Mauritius for grant of short term loan of US$20,000,000 by M/s. Standard Chartered Bank (Mauritius) Limited, Mauritius, that Noticee No. 25 was designated as Escrow/Security Agent and one of the conditions under “security” is “Deposit of physical shares and blank transfer deed of TMB representing 40% of the paid-up capital of the Bank.” I see that this is entirely backed up by the statements provided by Mr. Jaydeep Jayakar, Senior Manager, Client Services, Noticee No. 25 bank, Mumbai. He has, inter alia, deposed that Noticee No. 25 had been appointed as sub-agents of M/s Standard Chartered Bank, Mauritius who had been made as Transactional Settlement Agent in pursuance of Escrow Agreement dated 12-05-2007 entered among the arrangers of the foreign investors, arrangers of the sellers of equity of Noticee No. 1 bank to the foreign investors and Noticee No. 25…………..

…………..It was in this office that he was handed over around 95,000 shares of TMBL along with their transfer deed with the transferors’ signature on each of it and the column meant for the signature of transferee left blank. Because Noticee No. 25 was the sub-agent to the Escrow Agent, i.e., M/s. Standard Chartered Bank, Mauritius Limited and as the Power of Attorney had been given in favour of the sub-agent i.e., Noticee No. 25, he affixed his signature against transferees and they (Custodial Team of Noticee No. 25) signed the transfer deeds on behalf of foreign investors as transferees. The signed deeds along with the share certificates were then handed over to the Company Secretary of Noticee No. 1 for registration and transfer of the shares. Noticee No. 1 registered the shares on 14.05.2007 in the names of various foreign investors and the respective share certificates were handed over to him. A total of 95,418 shares were handed over for custodial purposes to him on 14-05-2007 and that out of 95,418 shares, 46,862 shares belonged to non-resident investor shares. In his further statements dated 03/07/2012 and 04/07/2012 given before the Assistant Director, Directorate of Enforcement, Bangalore, Shri Jayadeep Jayakar, inter-alia stated that as per the amended and restated Escrow & Transaction Settlement Agreement dated 12-05-2007 Noticee No. 25 was appointed as the sub-agent for SCB Mauritius and accordingly, Noticee No. 25 opened an INR Denominated account titled “SCB Project Windmill (Sale Consideration) Escrow Account” for remitting sale consideration of the shares of Noticee No. 1 payable from the US dollar denominated account -SCB Account Project Windmill Escrow Account (USD Account) maintained with SCB Mauritius. Besides Escrow Safe Keeping Account name “SCB Project Windmill (Shares) Escrow Account” had been opened by Noticee No. 25 to hold escrow shares and transfer deeds……..

…………..Shri Jayadeep Jayakar in his further statement dated 14-03-2013, inter-alia, stated that all the TMBL shares have been kept in SCB Project Windmill Shares Account and no separate accounts in the names of individual shareholders had been maintained.”

74. In Paragraph 6.54.4 of the Impugned Order it has been brought out that the Appellant SCB, Mumbai went contrary to the action recommended by the SCB, Mauritius, as well as the accounts which had been opened by the Appellant were in fact the Escrow account and that too without the permission of the RBI. Certain relevant portion of the Paragraph are cited below:

“6.54.4 I also notice that Noticee No. 25, under the signature of Shri Jaydeep Jayakar, addressed a letter dated 12/05/2007, i.e. one day prior to the Board meeting, to Noticee No. 1 bank on the subject of transfer of 95,418 shares (on the strength of irrevocable power of attorney granted by transferees), inter alia, stated that the said letter had been issued on behalf of their clients/investors, who wish to register the shares in Noticee No. 1 bank pursuant to an escrow agreement …………..

………….. I notice that Noticee No. 25 had written to Noticee No. 1 bank requesting them to transfer the shares in the names of the above foreign investors, despite being fully aware of the fact that those names were not approved by Reserve Bank of India in their letter dated 30/03/2007. I also notice that on the same day of 12/05/2007, SCB, Mauritius, addressed a letter to the transferors of the shares viz. M/s. Hemangini Finance and Leasing Private Limited, Mrinalini Leasing and Finance Private Limited, Mansiri Investment and Leasing Private Limited and M/s. Hi-Tech Traders Private Limited, in which the transferors were asked to confirm the sale of 46,862 shares to overseas investors in accordance with the Reserve Bank of India approval dated 30/03/2007…………..

…………This shows that Noticee No.25 has not acted as an agent of SCB, Mauritius rather it has been acting independently, as is evident from the letter dated 12/05/2007 written by Noticee No.25 to TMBL requesting the bank to transfer shares to seven foreign investors whose names were not approved by RBI whereas on the same day SCB, Mauritius has written a letter to the transferors of the TMBL shares to confirm the sale of TMBL shares in favour of foreign investors whose names were approved by RBI. This shows that the arrangement/agreement between SCB Mauritius and SCB India (both belong to the SCB, UK group) was in fact an arrangement of convenience rather than being an ‘agent-sub agent’ relationship which merely existed on paper. This also shows that the above resident transferors of TMBL shares were misled by SCB, Mauritius by informing them that their shares are being transferred to the foreign investors in accordance with the approval of the RBI which they knew would be transferred to the foreign investors not approved by RBI as Noticee No.25 had on the same day requested Noticee No.1 to transfer the shares in the names of such Foreign Investors…………..

…………..It cannot be denied that SCB, Mauritius is the WOS (wholly owned subsidiary) of Standard Chartered Plc, a company incorporated in England and SCB, India is its (Standard Chartered Plc) branch in India. So SCB, Mauritius and SCB, India both have the same entity viz. Standard Chartered Plc, UK as their parent entity. I also notice that Noticee No. 25, through Head-Regulatory Affairs (India) in their letter dated 14/03/2011 agreed that Standard Chartered Group had three roles in this transaction as Escrow Agent (through Standard Chartered Bank (Mauritius) Limited, Lender (through Standard Chartered Bank, Mauritius) and Investor (through Sub-Continental Equities Limited). Sub Continental Equities, which is a subsidiary of Standard Chartered Bank Investment Holding Company Limited, is in turn wholly owned by M/s. Standard Chartered Bank, incorporated in England, which in turn is owned by Standard Chartered Plc, a company incorporated in England and which is the parent company of Standard Chartered Group. The entity providing the funds in satisfaction of Katra Holdings Ltd., (KHL) loan was Sub-Continental Equity Limited. It is too hard to believe that the term ‘escrow’ would be used loosely by Noticee No. 25, who is a banking company in India. The fact that Noticee No. 25 opened current account number 222-0534651-7 on 12/05/2007 in the name of SCB Project Windmill (Sale Consideration) Escrow Account and the fact that on 14/05/2007 amounts totalling to Rs. 113,32,16,884/- were deposited into the account by way of inward remittances from M/s. Standard Chartered Bank (Mauritius) Limited in nine tranches viz., for sale consideration towards purchase of shares of Noticee No. 1 bank by seven foreign investors (M/s. Swiss Re Investors Mauritius Limited, M/s. Cuna Group Mauritius Limited, M/s. Kamehameha Mauritius Limited, M/s. RST Limited, wholly owned by Ravi S. Trehan, M/s. Katra Holdings Limited, wholly owned by Ramesh Vangal, M/s. FI Investments Mauritius Limited, and M/s. GHI I Limited, wholly owned by Rajat Kumar Gupta) and on the same day the entire amount was debited for making payments to the sellers of the shares, cannot be denied. I do not agree with the contention that this account is not an escrow account as Noticee No. 25 is not having any discretion and only has been acting as agent of Standard Chartered Bank (Mauritius) Limited. In fact this assertion by Noticee No.25 that it has been acting as an agent to SCB, Mauritius, is also factually incorrect as discussed above. Noticee No.25 has acted independently in writing letter dated 12.05.2007 to TMBL to register shares in the names of seven foreign investors whose names were not approved by RBI whereas on the same day SCB, Mauritius has written a letter to the transferors of the TMBL shares attaching list of the foreign investors (transferees) as approved by RBI. In my view, the opening of this current account titled SCB Project Windmill (Sale Consideration) Escrow Account and holding of 1,12,151 shares in the name of SCB Project Windmill (Shares) Escrow Account are part of escrow arrangement undertaken by Noticee No. 25. I do agree that Noticee No. 25, as a commercial entity is free to enter into contract with any other entity as they like. There can be no dispute about it. The problem arises when for loan granted by an overseas bank, property in India is sought to be controlled or held in escrow without necessary permission of the RBI, in which Noticee No. 25 played a key role. Also, there can be no dispute about an Authorised Person opening accounts permitted under Foreign Exchange (Deposit) Regulations, 2000, but the problem arise only when the account was opened as part of escrow, that too when prior permission of RBI that was required to be obtained was not obtained…………..

………….. Being an Authorised Person, Noticee No. 25 could not have been oblivious to this fact. The fact of the matter is that shares of Noticee No. 1 were transferred and registered in the names of entities that were not approved by RBI in their letter dated 30.03.2007. So, the funds that came into India for the purpose of purchase of TMBL shares by the foreign investors was not in terms of the approval accorded by the RBI vide its letter dated 30.03.2007…………..

…………..On the touchstone of this basic concept of an ‘escrow account’/’escrow arrangement’, it can be safely concluded the opening of two escrow accounts with SCB, Mumbai, i.e. SCB Project Windmill (Sale Consideration) Escrow Account and SCB Project Windmill (Shares) Escrow Account qualifies as ‘Escrow’ account/’Escrow’ arrangement. An amount of Rs.113,32,16,884/- has been received in SCB Project Windmill (Sale Consideration) Escrow Account from the seven foreign investors for the purchase of TMBL shares and on the same day this amount was transferred to the sellers of the TMBL shares and the shares which were kept in SCB Project Windmill (Shares) Escrow Account were transferred to the foreign investors. In view of these facts, I hold that opening of SCB Project Windmill (Sale Consideration) Escrow Account and SCB Project Windmill (Shares) Escrow Account qualifies as ‘Escrow account’/’Escrow arrangement’. I am also of the view that nature of transaction in these escrow accounts indicate they were indeed escrow accounts and not just by nomenclature.”

75. The Impugned Order also dealt with the question whether prior permission was required from the RBI to open the Escrow Accounts. In Paragraph 6.54.5 of the Impugned Order, we cite the following parts thereof:

“………….Regulation 3 of Foreign Exchange Regulation (Deposit) Regulations, 2000 reads as under:

“Restrictions on deposits between a person resident in India and a person resident outside India :- Save as otherwise provided in the Act or Regulations or in rules, directions and orders made or issued under the Act, no person resident in India shall accept any deposit from, or make any deposit with, a person resident outside India:

Provided that the Reserve Bank may, on an application made to it and on being satisfied that it is necessary so to do, allow a person resident in India to accept or make deposit from or with a person resident outside India.”

Plain reading of Foreign Exchange Management (Deposit) (Third Amendment) Regulations, 2007 and the A.P. (Dir Series) Circular No. 62 dated 24/05/2007 clearly shows that prior permission of RBI was required for opening an escrow account for transfer of shares before 24/05/2007. Subsequently, vide Notification No.FEMA. 162/2007- RB dated September 18, 2007 the Foreign Exchange Management (Deposit) Regulations, 2000 (Notification No. FEMA.5/2000-RB dated May 3, 2000) got amended to include:

“2A Non-resident acquirers may, subject to the terms and conditions specified in Schedule 8, open, hold and maintain Escrow Account and Special Account with Authorised Dealers in India without prior approval of the Reserve Bank, for acquisition / transfer of shares / convertible debentures through open offers /delisting / exit offers, subject to the relevant Security Exchange Board of India (SAST) Regulations or any other applicable Security Exchange Board of India Regulations/provisions of the Companies Act, 1956.”

This amendment which was introduced on 18/09/2007 and was effective from 24/05/2007 allowed opening of escrow account without the approval of the RBI. However, even for this, the acquisition / transfer of shares should be strictly in accordance with the provisions of Notification No. FEMA 20/2000-RB dated 3rd May, 2000 which is absent in the case of Noticee No.25 as the TMB shares have been transferred to the seven FIs in contravention to the Notification No. FEMA 20/2000-RB dated 3rd May, 2000 viz. The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000.

It is admitted fact that for opening the SCB Project Windmill (Sale Consideration) Escrow Account Number 222-0534651-7, Noticee No. 25 had not got prior permission of the Reserve Bank of India. Noticee No. 25 also allowed deposits totalling to Rs. 113,32,16,884/-in the said account on or before 14/05/2007. SCB Project Windmill (Shares) Escrow Account, in which 1,12,151 number of shares of Noticee No. 1 were deposited, was an integral part of escrow arrangement and was opened on or before 14/05/2007. Noticee No.25 was, therefore, required to obtain prior permission to open the escrow account. I, therefore, find no merit in the arguments raised against this contravention by Noticee No. 25 and reject the same

In fact, prior permission from RBI was envisaged in the Amended and Restated Escrow and Transaction Settlement Agreement dated 12.05.2007; for the purpose of taking various transactions under the agreement. This is appearing at clause 4.4 of the Amended and Restated Escrow and Transaction Settlement Agreement and Clause 4.4 of the Escrow Agreement clearly envisages the requirement for the RBI’s approval for undertaking the various transactions covered under the agreement. Similarly, Clause 14.1.2 and 14.1.3 includes representations made by the parties including SCB-Mauritius that the execution and performance of the agreement will be in compliance with the applicable laws and all required consents/approvals have been obtained.

Noticee No.25 was, therefore, well aware that the transactions undertaken in terms of the Escrow and Transaction Settlement Agreement dated 12.05.2017 required the RBI’s approval, and the failure to obtain the same has clearly been done willfully with the intent to avoid scrutiny by regulatory authorities and thereby breached their fiduciary position as escrow agents.

Hence, I am of the view that Noticee No. 25 had contravened the provisions of Regulation 3 of Foreign Exchange Management (Deposit) Regulations, 2000 issued in terms of section 6 (3) (f) of FEMA, 1999 to the extent of Rs. 113,32,16,884/-.”

76. With regard to the alleged contravention of the Regulations, 2000 relating to Guarantee, the Ld. AA has made the following findings in Paragraphs 6.55.1, 6.55.2 and 6.55.3 of the Impugned Order, of which we cite the following parts as under:

“6.55.1 I find that Noticee No. 25 vide their letter dated 23/06/2015 addressed to the Adjudicating Authority had furnished facility letters dated 09/05/2007 addressed separately to M/s. RST Limited and M/s. GHI I Limited by M/s. Standard Chartered Bank (Mauritius) Limited for grant of short-term loan facility of US$38,00,000 and US$ 1,80,00,000 respectively. In both the letters, under the heading Customer’s representations and warranties and covenants at para (3.1) (b) (i) it has been mentioned that “By signing this Facility Letter, you covenant and agree and undertake with the Bank at all times till the Facility is fully repaid that you shall not enter into any scheme of expansion, merger, amalgamation, compromise or reconstruction or sell, lease, transfer (or grant any option to do the same) all or substantial portion of its fixed and other assets without the prior written notice to the Bank.” (emphasis added). This condition, which is available in both the facility letters clearly indicate that the shares (which fall in the category ‘other assets’) of Noticee No. 1 bank which were to be acquired by the loans extended by Standard Chartered Bank (Mauritius) Limited to M/s. GHI I Limited and M/s. RST Limited were taken control as guarantee for the respective loans granted through the above “Non-disposal undertaking”. As a result of the above condition in the facility letters, M/s. RST Limited and M/s. GHI I Limited could not part with the TMBL shares they acquired with the help of the loans advanced by SCB Mauritius. Further, it can also not be denied that the equity shares of TMBL purchased by M/s. RST Limited and M/s. GHI I Limited were taken possession of by Shri Jaydeep Jayakar on 13/05/2005 after Noticee No. 1 registered the transfer of shares in their names. In fact, share transfer forms themselves were signed by the officials of Noticee No. 25 and submitted to Noticee No. 1 bank for transfer and for registering in the books of Noticee No. 1 bank. It is unheard of that a banking institution like Standard Chartered Bank (Mauritius) Limited would have lent money without necessary collateral/ security. Infact, SCB Mauritius deliberately took control of the shares of the TMBL which were acquired by M/s. RST Limited and M/s. GHI I Limited without explicitly mentioning it as a collateral or security for the loan advanced by M/s. SCB (Mauritius) Limited to these entities as the same would have resulted in contravention of relevant provisions of FEMA, 1999. However, M/s. SCB (Mauritius) Limited could not have let the control of TMBL shares vest with M/s. RST Limited and M/s. GHI I Limited and therefore took control of the TMBL shares through a “the Non Disposal Undertaking” and “Power of Attorney” structure: “the Non Disposal Undertaking” being inserted in the facility letters dated 09/05/2007 at para (3.1) (b) (i) under the heading Customer’s representations and warranties and covenants of the letter; and the PoA being given by M/s. RST Limited and M/s. GHI I Limited in respect of TMBL shares in favour of Noticee No.25 to enter into various transactions including sale, mortgage etc. Thus, Noticee No.25 not only obtained physical control of TMBL shares that were purchased by M/s. RST Limited and M/s. GHI I Limited but also got the right to enter into any kind of transactions in respect of such TMBL shares including sale or mortgage, etc. Thus, Noticee No. 25 contravened Regulation 3 of Foreign Exchange Management (Guarantees) Regulations, 2000 issued under section 6(3)(j) of FEMA, 1999 by undertaking the transaction of taking physical control of TMBL shares belonging to M/s. RST Limited and M/s. GHI I Limited through the ‘Power of Attorney’ structure. This transaction undertaken by Noticee No.25, who is a resident in India, has the effect of guaranteeing the debt of M/s. SCB (Mauritius) Limited owned by M/s. RST Limited and M/s. GHI I Limited who are persons resident outside India……….

6.55.2 I notice that M/s. SCB (Mauritius) Limited also advanced a loan of USD 20,000,000 and USD 13,600,000 to M/s. Katra Holdings Limited on 29/12/2006 and 09/05/2007 respectively. I also notice in the facility letter dated 29/12/2006 of M/s. Standard Chartered Bank (Mauritius) Limited addressed to M/s. Katra Holdings Limited for grant of short-term loan facility of US$ 2,00,00,000, that there is a clear mention of following assets against the term ‘security’:

(i) Title deeds over 62 acres of land owned by Shri Ramesh Vangal and M/s. Arudrama Developments Private Limited located in Bangalore along with an undertaking that in the event of default, SCB would have right to create equitable mortgage and sell the property; (ii) Pledge over 28.7% of shares of Scandent Holding Mauritius Ltd held by Shri Ramesh Vangal and M/s. Katra Finance Ltd (Mauritius) together in Scandent Holding Mauritius Ltd; (iii) Deposit of physical shares and blank transfer deeds of Noticee No. 1 bank representing 40% of the paid up capital of the Bank.

6.55.3………… I notice that under the requirement for documentation/condition precedent the original title deeds of 62 acres of land owned by Shri Ramesh Vangal and M/s. Arudrama Developments Private Limited, Bangalore, along with an undertaking that in the event of default, M/s. Standard Chartered Bank (Mauritius) Limited would have a right to create equitable mortgage and sell the property is also mentioned. Copy of signed share sale agreement between Corsair and M/s. Katra Holdings Limited is another documentation/condition precedent mentioned the said facility letter. I also notice from the letter dated 12/04/2007 of M/s. Katra Holdings Limited, Mauritius addressed to M/s. Standard Chartered Bank (Mauritius) Limited and the letter dated 12/04/2007 of M/s. Standard Chartered Bank (Mauritius) Limited addressed to M/s. Katra Holdings Limited (both produced by Shri Anand Subramanian during the course of his statement dated 09/05/2014) that M/s. Katra Holdings Limited had forwarded 95,458 shares of Noticee No. 1 bank along with transfer deeds in pursuance of escrow agreement dated 30/03/2007 and the receipt of share certificates and transfer deeds for 95,458 shares of Noticee No. 1 bank was acknowledged by the official of Noticee No.25…………..

…………..I notice from the “Irrevocable Undertaking to create Mortgage cum Power of Attorney” dated 07/12/2006 that SCB, Mumbai was made the Security agent for taking physical possession of the title deeds to the properties which were offered as security by Katra Holdings Limited to SCB, Mauritius for the purpose of availing loan of USD 20,000,000. Also SCB, Mumbai was having in its custody physical TMBL shares offered as security to the SCB Mauritius as per the facility letter dated 29/12/2006 from SCB, Mauritius to Katra Holdings Limited. As regards, the deposit of title deeds of seven properties relating to M/s. Arudrama Development Pvt Ltd and 26 properties of Shri Ramesh Vangal, I notice from the statement dated 06/05/2013 of Noticee No. 26, when it was pointed out to him as to whether Noticee No. 25 was not aware of the fact that receipt of title deeds of immovable properties in India itself constituted one end of the mortgage as per the Transfer of Property Act, 1882 in India and as to who paid the mortgage money, Noticee No. 26 answered that it was at the behest of Standard Chartered Bank (Mauritius) Limited that Noticee No. 25 accepted and became security agent pursuant to the “irrevocable Undertaking to create mortgage cum Power of Attorney. He added that Standard Chartered Bank (Mauritius) Limited had not instructed Noticee No. 25 to obtain necessary approvals from any of those regulatory or governmental agency, as contained in clause (b) of the Irrevocable Undertaking to create mortgage cum power of attorney. He also stated that the Irrevocable Undertaking to create mortgage cum power of attorney was unregistered under Indian Registration Act, 1908. Also, he stated that as per deed, the mortgagee and guarantee receiver is Standard Chartered Bank (Mauritius) and there is no provision on the deed for the mortgagee to be a signatory to this arrangement. When questioned as to whether it was allowed in Indian laws to mortgage properties in India by submission of title deeds with Noticee No. 25 for the loans raised against this mortgage from Standard Chartered Bank (Mauritius) Limited, he answered that as per initial legal advice received in December, 2006, the security mentioned in the sanction letter of Standard Chartered Bank (Mauritius) dated 29/12/2006 was compliant with the Indian laws. Subsequently, Noticee No. 25 reviewed its earlier interpretation of such practice and no longer accepts immovable properties as collateral for loans granted abroad and Noticee No. 25 changed its stance some time in 2010. It is seen that Noticee No. 26 had tendered the statement in his capacity as Managing Director, Global Head of Banks, Financial Institutions Group, Origination and Client Coverage, Standard Chartered Bank, Singapore. I find that in para 10 of the above ruling K.J. Nathan v. S.V. Maruthi Rao, 1965 AIR 430, 1964 SCR (6) 727 Hon’ble Apex Court has observed as under:

“The foregoing discussion may be summarized thus: Under the Transfer of Property Act a mortgage by deposit of title-deeds is one of the forms of mortgages where under there is a transfer of interest in specific immovable property for the purpose of securing payment of money advanced or to be advanced by way of loan. Therefore, such a mortgage of property takes effect against a mortgage deed subsequently executed and registered in respect of the same property. The three requisites for such a mortgage are, (i) debt, (ii) deposit of title-deeds; and (iii) an intention that the deeds shall be security for the debt. Whether there is an intention that the deeds shall be security for the debt is a question of fact in each case. The said fact will have to be decided just like any other fact on presumptions and on oral, documentary or circumstantial evidence. There is no presumption of law that the mere deposit of title-deeds constitutes a mortgage, for no such presumption has been laid down either in the Evidence Act or in the Transfer of Property Act. But a Court may presume under Section 114 of the Evidence Act that under certain circumstances a loan and a deposit of title-deeds constitute a mortgage. But that is really an inference as to the existence of one fact from the existence of some other fact or facts. Nor the fact that at the time the title-deeds were deposited there was an intention to execute a mortgage deed in itself negatives, or is inconsistent with, the intention to create a mortgage by deposit of title-deeds to be in force till the mortgage deed was executed.”

I find that in the instant case all the three ingredients viz. (i) debt, (ii) deposit of title-deeds; and (iii) an intention that the deeds shall be security for the debt are fulfilled and therefore the pledge of property documents amount to guarantee within the meaning of the provisions of Foreign Exchange Management (Guarantees) Regulations, 2000. Regulation 4 stipulates the types of guarantees that can be given by an authorised dealer. Providing of collateral/ guarantee by Noticee No. 25 by taking into custody of TMBL shares and original sale deeds of land in lieu of which M/s. Standard Chartered Bank, Mauritius granted a loan of US$ 41.80 million to three foreign entities viz. (i) RST Limited, (ii) M/s. Katra Holdings Limited, Mauritius and (iii) M/s. GHI I Limited and a further loan of US$ 13.60 million to M/s. Katra Holdings Limited, Mauritius, thus totalling to US$ 55.50 million, equivalent to Rs. 221 crores is not in consonance with the types of guarantees permitted to be extended by an authorised dealer in India…………..”

77. We find that there is documentation in terms of an Escrow and Transaction Settlement Agreement dated 30.03.2007, as amended on 12.05.2007 whereby Standard Chartered Bank, Mauritius had been appointed as Escrow and Transaction Settlement Agent. In terms of the said Agreement the Appellant SCB, Mumbai was appointed as Sub-Agent with Authorisation to open INR denominated account for receiving and paying remittances received against sale of shares including that of TMBL as also to open a safe keeping account for holding physical shares and transfer deeds relating thereto. We note that these facts are not disputed. Another document in the form of Banking Facility Letter dated 29.12.2006 evidences that the Appellant SCB, Mumbai was designated as Escrow/Security Agent for holding physical shares and transfer deed of TMBL against grant of loan of US $ 20 Million from SCB Mauritius to M/s Katra Holdings Ltd., Mauritius.

This arrangement has been corroborated in the statements of Shri Jayadeep Jayakar, Senior Manager, Client Service, SCB, Mumbai. The statements being under Section 37 of FEMA are admissible as evidence. In fact, it was he who received shares of TMBL along with the transfer deeds, and it was he who had affixed his signature against transferees and on behalf of the Foreign Investors who were the said transferees. In his further statement on 14.03.2013 Shri Jayadeep Jayakar clarified that the TMBL shares were kept in the SCB Project Windmill Shares Account. The argument of the Appellant that the accounts were merely labelled as an Escrow Account does not cut much ice. The Appellant has further contended that privity of contract was between the SCB, Mauritius and the other parties. The Appellant was merely a sub-agent of SCB, Mauritius. We find that while the arrangement through documentation was created as to make SCB, Mauritius as the Escrow Agent and SCB, Mumbai as Sub-Agent of SCB, Mauritius, the manner in which these arrangements worked out clearly show that the functionalities of the Escrow Agent were carried out by SCB, Mumbai. It is obvious that since the arrangements were created for transfer of shares of TMBL, located in India, the transactions relating thereto had to be performed through a Banking Entity in India. Therefore, SCB, Mumbai under the ostensible role of sub-agent ended up performing the functions of its so called principal SCB, Mauritius.

78. The Appellant SCB, Mumbai has challenged the finding of the Ld. AA that the Appellant Bank acted independently of SCB, Mauritius made on the basis of the letter dated 12.05.2007 issued by the Appellant to TMBL. The Appellant contended that it wrote the said letter as a custodian for the financial institutions and letter of SCB, Mauritius was written to the transferors of the shares in its capacity as an Escrow Agent. We find that the Appellant has contradicted its claimed position that it was a sub-agent of SCB, Mauritius by making the aforementioned contentions. The content of the letter dated 12.05.2007 written by the SCB, Mumbai under the signature of Shri Jayadeep Jayakar requested TMBL to transfer the shares in the name of the foreign entities which were actually approved by the Board of TMBL subsequently on 13.05.2007. It is also to be noted that these foreign investors had not been approved by the RBI in the letter dated 30.03.2007. This was contrary to the letter of the same date i.e. 12.05.2007 issued by SCB, Mauritius to the transferors of the shares M/s. Hemangini Finance and Leasing Private Limited, Mrinalini Leasing and Finance Private Limited, Mansiri Investment and Leasing Private Limited and M/s. Hi-Tech Traders Private Limited, in which the transferors were asked to confirm the sale of 46,862 shares to overseas investors in accordance with the Reserve Bank of India approval dated 30.03.2007. The discrepancy between the two letters is so glaring that the independent functioning of the Appellant SCB, Mumbai brings their contention and supporting document of being sub-agent of SCB, Mauritius under cloud. In fact, the temporal proximity of the letter dated 12.05.2007 of the Appellant SCB, Mumbai with the date of 13.05.2007 when the TMBL Board Resolution was passed, makes it appear as the immediate trigger to set the ball rolling for various contraventions. The Impugned Order has gone on to discuss how subsequent transfer of these shares occurred from M/s Katra Holdings to Sub-Continental Equities which is wholly owned by M/s Standard Chartered Bank Incorporated in England. It is important to note that the Appellant SCB, Mumbai failed to examine the statutory position in India in this regard.

79. Having held the accounts as the Escrow Account and the operations of the Appellant SCB, Mumbai, as that of the Escrow Agent, the provisions of Regulation 3 of Foreign Exchange Management (Deposit) Regulations 2000 have been obviously contravened. The amendment which was brought in the Regulations 2000 on 18.09.2007 was effective from 24.05.2007. The shares of the TMBL which had been transferred to the 7 Entities residents outside India without the approval of the RBI were approved by the Board of TMBL on 13.05.2007. There is an unambiguous finding in the Impugned Order that the SCB Project Windmill (Sale Consideration) Escrow Account had been opened without prior permission of the RBI and deposits of Rs. 113,32,16,884/- into the account had been made on 14.05.2007. It is also not disputed that the SCB Project Windmill (Shares) Escrow Account in which 1,12,151 number of shares were deposited was also opened without the RBI permission. The argument of the Appellant that it was merely a current account in which the money came in on 14.05.2007 and also exited from the same account on that very same day does not takeaway its use as an Escrow Account, so as to ensure that money is remitted from the buyers of the shares abroad to the sellers of the shares in India, while the Appellant SCB, Mumbai held on to these shares in the Shares Account. The conducting of these transactions in this manner through the SCB, Mumbai leads to inescapable inference that whatever may be the arrangement on paper the role of SCB, Mumbai was that of an Escrow Agent. We therefore hold that the contravention of the Regulations 2000 relating to Deposit is established.

80. It is on record that the SCB, Mauritius advanced loan of USD 20,000,000 and USD 13,600,000 to M/s Katra Holdings Ltd. on 29.12.2006 and on 09.05.2007 respectively. Further, SCB, Mauritius granted short term loan facility of US $ 38,00,000 and US $ 1,80,00,000 to M/s RST Ltd. and M/s GHI I Ltd. respectively vide facility letters dated 09.05.2007. The Appellant has run down the significance of Paragraph 3.1 (b) (i) of letters dated 09.05.2007. However, it cannot be denied the said Paragraph implied that M/s RST Ltd. and M/s GHI I Ltd. could not part with the TMBL shares which they acquired with the help of the loan advanced by SCB, Mauritius. It is on record, that the TMBL shares were taken possession by Shri Jayadeep Jayakar on 13.05.2005 after the transfer of shares by M/s TMBL. The structures of the Non-Disposal Undertaking and Power of Attorney ensured safeguard for SCB, Mauritius against default of the loan advanced by it. Even here it was the SCB, Mumbai which had obtained physical control of TMBL shares that were purchased by M/s RST Ltd. and M/s GHI I Ltd. The Ld. AA has noted that SCB, Mumbai had got the right to enter into any kind of transactions in respect of such TMBL shares. It is also clear from the facility letter dated 29.12.2006 of SCB, Mauritius that the short-term loan facility of US $ 20,000,000 was against the assets which were being used as security. These assets related to title deed of over 62 acres of land in Bangalore, pledge over 28.7% shares of Scandent Holding Mauritius and deposits of physical shares and blank transfer deeds of TMBL. Ld. AA has specifically mentioned that there was an undertaking by Shri Ramesh Vangal and M/s Arudrama Developments Pvt. Ltd., Bangalore that in the event of defaults, M/s SCB, Mauritius could create equitable mortgage and sell the property. The SCB, Mumbai was made the security agent for taking physical possession of the title deeds to the properties which were offered as security by Katra Holdings Ltd. for availing loan from SCB, Mauritius. This is so mentioned in the facility letter dated 29.12.2006. The argument of the Appellant that it is so at the behest of SCB, Mauritius cannot change the factual position that guarantee was extended through the services of the Indian Entity viz SCB, Mumbai. In the statement dated 06.05.2013, the individual Appellant, Shri Ranjan Ghosh admitted that the SCB, Mumbai reviewed its practice and stopped accepting immovable properties as collaterals for loans granted abroad since 2010. The said transaction was therefore not Compliant to the provisions of Regulation 3 of Foreign Exchange Management (Guarantees) Regulations 2000, which is being reproduced below:

Prohibition.

3. Save as otherwise provided in these regulations, or with the general or special permission of the Reserve Bank, no person resident in India shall give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the effect of guaranteeing, a debt, obligation or other liability owed by a person resident in India to, or incurred by, a person resident outside India.

It is to be noted from the provisions that even undertaking a transaction by whatever name it may be called which has the effect of guaranteeing a debt or an obligation and any other liability incurred by a person resident outside India was prohibited. Therefore, the protestation by the Appellant SCB, Mumbai that the keeping of the TMBL shares owned by those, who had taken loan abroad and further keeping the title deeds of the properties in India did not amount to pledge or security fail to satisfy the requirements of the provisions of Regulations 2000 relating to Guarantee. The question about whether SCB, Mauritius having not liquidated the shares of TMBL even on default of loan is best answered from the fact that the transaction of keeping the shares and the security in the SCB Project Windmill Shares Account had the effect of providing a Guarantee, which cannot be overlooked merely because subsequently no liquidation happened on default of loan. The objection raised by the Appellants that the loan amount was less than US $ 55,400,000 is not corroborated by the facts of the case. Another objection being that the issuer of Guarantee can only be charged has no significance in the facts of the present case since the actions undertaken by the Appellant SCB, Mumbai amounted to extending of Guarantee as discussed afore, for which it has been charged. We therefore find that the contravention of the Regulations 2000 relating to Guarantee is established.

81. With respect to the contraventions arising from the vicarious liability of the individual Appellant Shri Ranjan Ghosh, Ld. AA has made the following findings in Paragraph 6.56 of the Impugned Order:

“6.56 ………..I notice from the statement dated 04/07/2012 of Shri Jaydeep Jayakar, in the matter of opening of escrow accounts and holding of shares came under three divisions of Noticee No. 25 viz. Operations, Client Servicing and Product Divisions of Noticee No. 25 and that Noticee No. 26 was the Business Head of Noticee No. 25 in control and in-charge of all these three divisions. I also notice from the statement dated 14/03/2013 of Shri Jaydeep Jayakar that he had received the original title deeds of the properties of M/s. Arudrama Developments Limited and Shri Ramesh Vangal on the instructions of Shri Sachin Shah and Noticee No. 26…………..

…………..Shri Ranjan Ghosh also in his statement stated that prior to 22/08/2008, he was Head of Financial Institutions of Noticee No. 25 bank in India and in that statement and in his subsequent statement dated 06/05/2013, explained the issues relating to opening of escrow accounts and about taking over the title deeds of M/s. Arudrama Developments Pvt Ltd and Shri Ramesh Vangal in connection with loan granted by M/s. Standard Chartered Bank (Mauritius) Limited to M/s. Katra Holdings Limited, Mauritius. Being overall in charge of three division of Noticee No. 25 at the relevant point of time, which were relatable to the contraventions found to be committed by Noticee No. 25, 1 am of the view that Noticee No. 26 is covered in terms of section 42 (1) of FEMA, 1999…………..

…………..Noticee No. 26 had not rebutted the presumption that the contraventions took place without his knowledge and/or that he exercised all due diligence to prevent such contravention. On the contrary, the materials relied by the Directorate of Enforcement, clearly establish that Noticee No. 26 was in charge of and was responsible to the conduct of three divisions of Noticee No. 25, which dealt with the impugned transactions …………..”

Ld. Counsel for the individual Appellant Shri Ranjan Ghosh has argued that the manner in which the Appellant was in-charge of and responsible to the Company for its business has not been brought out by the Respondent Directorate. We observe here that the issue at hand is with respect to the contraventions of Deposit Regulations 2000 and Guarantee Regulations 2000 and therefore the transactions leading to the said contraventions have been investigated. It is on record that the opening of the Escrow Accounts and matters relating to holding of shares were the responsibility of three Divisions of SCB, Mumbai namely Operations, Client Service and Product. The individual Appellant was the Business Head in-charge of all the three Divisions. The individual Appellant has also raised preliminary objections which have already been disposed of in the Paragraphs from 50 to 55 of this Order. The grounds raised with respect to the merit of the charges against him have been duly considered in the preceding Paragraphs while discussing the Appeal filed by SCB, Mumbai. Therefore, we find that the individual Appellant Shri Ranjan Ghosh is liable for penalty under Section 42 (1) of FEMA, since such penalty is invocable by virtue of his position in SCB, Mumbai, whereby he dealt with the impugned transactions.

Consideration of Fourth Set of Issues relating to receipt of Foreign Exchange abroad by Shri M G M Maran

82. There is further allegation made in the SCN against the Noticee No. 2 (Shri M G M Maran, who is Appellant herein), who was the then Chairman and Director of TMBL. Shri Maran as a person resident in India, without the permission of the Reserve Bank of India opened an account vide number 7102356 with M/s. ABN Amro Bank NV, Singapore branch, Singapore in his name.

Foreign Exchange to the tune of US$ 68,50,000 (equivalent to Rs. 28,08,50,000/-) was received in the said account from M/s. Katra Holdings Limited, Port Louis, Mauritius, as consideration for facilitating and assigning the rights towards transfer of shares of TMBL in favour of M/s. Katra Holdings Limited, consequent to agreement dated 02.03.2006 with M/s. Katra Holdings Limited. But the said amount was not repatriated into India and thereby occurred contraventions of the provisions of Section 4 and Section 8 of FEMA read with Regulation 3 and Regulation 4 of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000. Ld. AA in Paragraphs 6.65 and 6.66 of the Impugned Order has made the following findings:

“………… As per the submission of Noticee No. 2, he stayed for 171 days only in India during the Financial Year 2006-2007, which was calculated excluding the date of arrival into India (it comes to 170 days as per the calculation in the table above). However, I am of the view that calculation of 182 days cannot be done by excluding the date of arrival into India. I am of the view that both the date of departure from India and date of arrival into India of a person has to counted for calculating the period of 182 days in terms of section 2 (v) of FEMA, 1999, as on both those days a person would be present in India. Calculated in that fashion, Noticee No. 2 was found to be residing in India during the financial year 2006-2007 for a period of 191 days i.e. exceeding 182 days…………..

…………..This itself shows that the visits made by Noticee No. 2 abroad were for finite period and did not exhibit his intention to stay outside India for an uncertain period, despite his having set up a company in Singapore and having paid taxes for income generated out of it. The intention of the Noticee No. 2 to stay outside India for an uncertain period during the period of impugned transaction is absent on the basis of facts of this case. It is also important to note Noticee No.2 is also having a huge business empire in India as well…..

…………..These exclusions, in my opinion, do not apply to Noticee No.2 as the facts do not indicate his intention to stay outside India for an uncertain period. He has been frequently travelling to India to look after his business interests………….. ”

83. Ld. Counsel for the Appellant argued that the Co-ordinate Bench of this Tribunal in its Final Order dated 15.10.2025 in the matter of A.D., E.D., Chennai vs. Mr. Nesamanimaran (FPA-FE-98/CHN/2022) has upheld the setting aside of the seizure under Section 37A of FEMA vide Order dated 13.04.2022 of the Competent Authority. Ld. Counsel stated that the seizure had been caused of the property in India of the Appellant of value equivalent to the receipt of US $ 68,50,000 (equivalent to Rs. 28,08,50,000/-) in Singapore. The Appellant argued that the provisions of Section 37A can only be invoked for contravention of Section 4 of FEMA, which can only happen if the Foreign Exchange acquired is by a person resident in India. However, the Ld. Competent Authority correctly had set aside the seizure on the grounds that the Appellant herein Shri M G M Maran was not a person resident in India for the relevant preceding year 2006-07, as the amount of US $ 68,50,000 was transferred to his aforesaid bank account in Singapore on 18.05.2007. Ld. Counsel argued that the Co-ordinate Bench of this Tribunal has already upheld the Order of the Competent Authority holding that the Appellant was not a person resident in India, then. The Appeal of the Respondent Directorate was dismissed vide the aforementioned Order dated 15.10.2025. Ld. Counsel reiterated the Final Order dated 15.10.2025 (supra), which we reproduce below:

“The appeal has been preferred under Section 37A of FEMA, 1999. A challenge has been made to the order dated 13.04.2022 whereby seizure of the shares has not been endorsed finding Respondent to have not fallen in the definition of “person Resident of India” defined under Section 2(v) of the Act of 1999. It was for the reason that he had not completed a period of 182 days in India. The period aforesaid was counted after excluding the day of arrival as per the provision of the General Clauses Act. The Appellant had accepted application of the General Clauses Act to the provision of the Act of 1999, as and when required to be applied. In the light of the aforesaid, we find no merit in the appeal because period of 182 days has been counted by the Assistant Director of the Directorate of Enforcement taking into consideration the effective days of stay of the Respondent in India excluding the day of his arrival as per the General Clauses Act. Since, the Respondent has accepted rather admitted about the application of the General Clauses Act, thus, we find no reason to cause interference in the impugned order.

The appeal accordingly fails and is dismissed.”

84. In view of the aforementioned, we have to concur with the Final Order dated 15.10.2025 of the Co-ordinate Bench of this Tribunal and hold that as on the date of receipt of the said Foreign Exchange in the bank account of the Appellant in Singapore, the Appellant was a person resident outside India. Hence, the contravention of the provisions of Section 4 and Section 8 of FEMA read with Regulation 3 and Regulation 4 of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2000 are not established against the Appellant Shri M G M Maran.

Penalty amounts:

85. Almost all the Appellants have pleaded for making the penalties proportionate to their role and involvement in the contraventions of the aforementioned provisions. We also find that this Tribunal vide Order dated 14.10.2025 has noted that the Appellant TMBL did not press for the Application for waiver of the pre-deposit of the penalty amounts of Rs. 11,33,21,688/- plus Rs. 5,66,60,844/- since full amount of penalty had been deposited by the Appellant TMBL. We further find that this Tribunal vide Order dated 11.07.2024 disposed of the Application for waiver of the pre-deposit of the penalty amount by directing the Appellant Shri M G M Maran to make pre-deposit of Rs. 5,00,00,000/- by way of a Fixed Deposit with the lien of the Respondent Directorate against the total penalties of Rs. 1,00,00,000/- plus Rs. 35,00,00,000/-. This Tribunal vide Orders dated 30.04.2024 disposed of the Applications for waiver of the pre-deposit of the penalty amount by directing the Appellants to deposit 20% of the penalty amounts imposed on each of them. The Applications for waiver of the pre-deposit of the penalty amounts with respect to the Appeals filed by SCB, Mumbai and the individual Appellant Shri Ranjan Ghosh were disposed of vide Order dated 15.03.2024 with direction to the Appellants to make deposit of 10% of the penalties imposed on each of the two Appellants. SCB, Mumbai has also pleaded that the penalty imposed on it is almost 30% of the extent of contraventions. We observe that besides the roles and the involvements of the Appellants in the aforementioned contraventions, the extent of the amount of the contraventions has been taken into account in the Impugned Order while determining the penalty amount for each of the Appellant. For three Appellants vis Shri G Narayana Moorthy, Shri A K Jagannathan and Shri Ranjan Ghosh vicarious liability has been invoked under the provisions of Section 42 (1) of FEMA by virtue of their respective positions in the Companies. For the rest of the Appellants there has been invocation of Section 42 (2) of FEMA. In view of the findings made in this Order, we reduce the penalty for each of the Appellants to an amount that shall meet the ends of justice as follows:

1. The penalty amount on the Appellant TMBL is reduced to Rs. 2,26,00,000/- for the contraventions with respect to the first set of issues. The penalty amount on the Appellant TMBL is reduced to Rs. 1,14,00,000/- for the contraventions with respect to the second set of issues. Thus, the total penalty on the Appellant TMBL is reduced to Rs. 3,40,00,000/-. Since the Appellant TMBL has already deposited the total penalty imposed under the Impugned Order, the amount in excess of the reduced penalty shall be refunded.

2. In view of the finding that the contravention with respect to the fourth set of issues is not established against the Appellant Shri M G M Maran, the penalty of Rs. 35,00,00,000/- is set aside. The penalty amount of Rs. 1,00,00,000/- imposed in the Impugned Order for the specific role for which the vicarious liability was invoked under Section 42 (2) of FEMA for the contraventions with respect to the first set of issues, is maintained. The excess amount of pre-deposit, if any, made by the Appellant shall be refunded.

3. The penalty amount on the Appellant Shri G Narayana Moorthy is reduced to Rs. 10,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

4. The penalty amount on the Appellant Shri R Kannan Adityan is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

5. The penalty amount on the Appellant Shri A Rajagopalan is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

6. The penalty amount on the Appellant Shri V Bhaskaran is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

7. The penalty amount on the Appellant Shri P H Arvind Pandian is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

8. The penalty amount on the Appellant Shri P Prem Vetty is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

9. The penalty amount on the Appellant Shri A Narayanan is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

10. The penalty amount on the Appellant Shri N Balasubramanian is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

11. The penalty amount on the Appellant Shri A Selva Ghosh is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

12. The penalty amount on the Appellant Shri S T Kannan is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

13. The penalty amount on the Appellant Shri K K Sharma is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

14. The penalty amount on the Appellant Shri P Prabaharan is reduced to Rs. 10,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

15. The penalty amount on the Appellant Shri A K Jagannathan is reduced to Rs. 5,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. Excess amount, if already paid shall be refunded. We observe that with respect to Shri A K Jagannathan the extent of contravention was Rs. 90,31,41,094/- with respect to the second set of issues.

16. The penalty amount on the Appellant Shri S Sundar is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

17. The penalty amount on the Appellant Shri P Yesuthasen (through LR) is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

18. The penalty amount on the Appellant Shri A Shidabaranathan is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

19. The penalty amount on the Appellant Shri K N Rajan is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

20. The penalty amount on the Appellant Shri K V Rajan is reduced to Rs. 2,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

21. The penalty amount on the Appellant Shri Deepak C S is reduced to Rs. 1,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order. Excess amount, if already paid shall be refunded. We observe that with respect to Shri Deepak C S the extent of contravention was Rs. 70,40,00,000/- with respect to the second set of issues.

22. The penalty amount on the Appellant SCB, Mumbai is reduced to Rs. 3,40,00,000/- for the contraventions with respect to the FEM (Deposit) Regulations 2000. The penalty amount on the Appellant SCB, Mumbai is reduced to Rs. 6,60,00,000/- for the contraventions with respect FEM (Guarantees) Regulations 2000. Thus, the total penalty on the Appellant SCB, Mumbai is reduced to Rs. 10,00,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

23. The penalty amount on the Appellant Shri Ranjan Ghosh is reduced to Rs. 2,00,000/- for the contraventions with respect to the FEM (Deposit) Regulations 2000. The penalty amount on the Appellant Shri Ranjan Ghosh is reduced to Rs. 2,00,000/- for the contraventions with respect FEM (Guarantees) Regulations 2000. Thus, the total penalty on the Appellant Shri Ranjan Ghosh is reduced to Rs. 4,00,000/- which shall be adjusted against the amount, if any, paid as pre-deposit of the penalty amount imposed under the Impugned Order.

86. In view of the aforementioned discussions and findings, we Partly Allow the Appeals Nos. FPA-FE-83/CHN/2022 filed by M/s Tamilnad Mercantile Bank Ltd., FPA-FE-92/CHN/2020 filed by Shri M. G. M. Maran @ Nesamanimaran, FPA-FE-95/CHN/2020 filed by Shri Ranjan Ghosh, FPA-FE-96/CHN/2020 filed by Standard Chartered Bank, FPA-FE-97/CHN/2020 filed by Shri P. H. Arvind Pandian, FPA-FE-98/CHN/2020 filed by Shri A Selva Ghosh, FPA-FE-99/CHN/2020 filed by Shri R Kannan Adityan, FPA-FE-100/CHN/2020 filed by Shri A Narayanan, FPA-FE-102/ CHN/2020 filed by Shri N. Balasubramanian, FPA-FE-103/CHN/ 2020 filed by Shri P. Prem Vetty, FPA-FE-106/CHN/2020 filed by Shri V. Bhaskaran, FPA-FE-112/CHN/2020 filed by Shri A. Rajagopalan, FPA-FE-39/CHN/2021 filed by Shri G. Narayana Moorthy, FPA-FE-40/CHN/2021 filed by Shri K. K. Sharma, FPA-FE-41/CHN/2021 filed by Shri A. Shidabaranathan, FPA-FE-42/ CHN/2021 filed by Shri S. Sundar, FPA-FE-43/CHN/2021 filed by Shri K. V. Rajan, FPA-FE-44/CHN/2021 filed by Shri Deepak C S, FPA-FE-45/CHN/2021 filed by Shri A. K. Jagannathan, FPA-FE-46/CHN/2021 filed by Shri P. Yesuthasen (through LR), FPA-FE-47/CHN/2021 filed by Shri S. T. Kannan, FPA-FE-48/CHN/2021 filed by Shri B. Prabaharan, FPA-FE-49/CHN/2021 filed by Shri K. N. Rajan. Applications pending, if any, stand disposed of accordingly.

Filed under FEMA Prevention of Money Laundering Act

Author Info

Name: CA Vijayakumar Shetty

Qualification: CA in Practice

Company: Shetty & Co, Chartered Accountants, Mangalore

Location: Mangalore, Karnataka

Articles Published: 5,573

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Case Law Details

Tamilnad Mercantile Bank Ltd. Vs Special Director (Appellate Tribunal Under SAFEMA Delhi)

Appeal Number

Name of the Appellant with Designation

Notice e no. in the Imp. Order

Amount of Penalty (in Rs.)

Contravention and Regulations

Amount of extent (in Rs.)

FPA-FE- 83/CHN /2022

Tamilnad Mercantile Bank Ltd.

1

11,33,21,688/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000

113,32,16,884/-

5,66,60,844/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000

160,71,41,094/-

FPA-FE- 92/CHN

/2020

Shri M. G. M. Maran @ Nesamanima ran (Chairman of TMBL)

2

1,00,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

35,00,00,000/-

Section 4 & 8 of FEMA, Regulation 3 & 4 of FEM (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of FEM (Foreign Currency Accounts by a person resident in India) Regulation 2000

28,08,50,000/-

FPA-FE- 39/CHN /2021

Shri G. Narayana Moorthy (Managing Director & CEO of TMBL)

3

50,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (1) of FEMA

113,32,16,884/-

FPA-FE- 99/CHN /2020

Shri R Kannan Adityan (Director of TMBL)

4

5,00,000/-

Section 6 (3) (b) of

FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

FPA-FE- 112/CH N/2020

Shri A. Rajagopalan (Director of TMBL)

5

5,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

FPA-FE- 106/CH N/2020

Shri V. Bhaskaran (Director of TMBL)

6

5,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

FPA-FE- 97/CHN 2020

Shri P. H. Arvind Pandian (Director of TMBL)

7

5,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

FPA-FE- 103/CH N/2020

Shri P. Prem Vetty (Director of TMBL)

8

5,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

FPA-FE- 100/CH N/2020

Shri A

Narayanan

(Director of TMBL)

9

5,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

FPA-FE- 102/CH N/2020

Shri N. Balasubrama nian (Director of TMBL)

10

5,00,000/-

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in terms of Section 42 (2) of FEMA

113,32,16,884/-

FPA-FE- 98/CHN

/2020

Tamilnad
Mercantile
Bank Ltd.

Section 4 & 8 of FEMA, Regulation 3 & 4 of FEM (Realisation, Repatriation and
Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of FEM (Foreign Currency
Accounts by a person resident in India)
Regulation 2000

FPA-FE-
112/CH
N/2020

FPA-FE-
106/CH
N/2020

Shri V. Bhaskaran (Director of
TMBL)

FPA-FE-
103/CH
N/2020

Shri P. Prem Vetty (Director of
TMBL)

FPA-FE-
100/CH
N/2020

(Director of
TMBL)

Section 6 (3) (b) of FEMA, Regulation 4 of the FEM (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000 in
terms of Section 42 (2) of FEMA

FPA-FE-
102/CH
N/2020

Shri A Selva Ghosh (Director of
TMBL)

Regulation, 2000 in
terms of Section 42 (2) of FEMA

Shri S. T. Kannan (RBI Nominee
and Director of TMBL)

Shri K. K. Sharma (Company Secretary of
TMBL)

Shri S. Sundar (Director of
TMBL)