Union of India Vs Nihar Ranjan Samantara (Appellate Tribunal Under SAFEMA Delhi)
SAFEMA Tribunal Refuses to Enhance FEMA Penalty on IGNIS Director; Holds Quantum of Penalty Lies Within Adjudicating Authority’s Discretion
The Appellate Tribunal under SAFEMA dismissed the Enforcement Directorate’s appeal seeking enhancement of the ₹70 lakh penalty imposed on Nihar Ranjan Samantara, Director and CEO of IGNIS Technology Solutions Pvt. Ltd., for FEMA contraventions relating to foreign remittances made towards an alleged software import that never materialised. The Directorate contended that the respondent, being a Director, authorised signatory and joint signatory to the outward remittances of USD 75.25 lakh (approximately ₹33.42 crore), had actively participated in the transactions and therefore deserved a substantially higher penalty under Section 13(1) of FEMA.
The Tribunal observed that the sole ground urged by the Directorate was that the penalty imposed was too low in comparison with the magnitude of the contravention. It held that Section 13(1) of FEMA prescribes only the maximum permissible penalty-up to three times the amount involved-but does not prescribe any minimum or mandatory penalty. Consequently, determination of the quantum of penalty is a matter of judicial discretion to be exercised by the Adjudicating Authority after considering the facts and evidence in each case. The Tribunal found that the Adjudicating Authority had passed a detailed, reasoned order after evaluating the evidence and that there was no material to show that such discretion had been exercised arbitrarily or perversely.
Relying on the Supreme Court’s decision in State of M.P. v. Bharat Heavy Electricals, the Tribunal reiterated that where a statute prescribes only a maximum penalty, the adjudicating authority is not bound to impose the maximum amount. Since the Directorate failed to demonstrate why the penalty of ₹70 lakh was inadequate or why the Adjudicating Authority’s exercise of discretion required appellate interference, the Tribunal declined to enhance the penalty. Accordingly, the Enforcement Directorate’s appeal was dismissed, leaving the penalty imposed on the Director undisturbed.
Cases Discussed
- State of MP and Ors. Vs. Bharat Heavy Electricals (SC), (1997) 7 Supreme Court Cases 1
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
This Order disposes of the Appeal No. FPA-FE-105/CHN/2020 filed by the Union of India through Deputy Legal Adviser, Directorate of Enforcement, Chennai against part of the Adjudication Order No. SDE/SRO/BGZO/07/2020(SK) dated 30.06.2020 (Impugned Order), passed by the Special Director, Enforcement Directorate, Government of India, Chennai. The Ld. Adjudicating Authority (AA) imposed penalty of Rs. 7,00,00,000/-
on the Appellant Company M/s IGNIS Technology Solutions Pvt. Ltd. for the contraventions of Section 10 (6) of the Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 6 (1) of the Foreign Exchange Management (Realization Repatriation and Surrender of Foreign Exchange) Regulations, 2000. Further penalty of Rs. 70,00,000/- was imposed on Shri Nihar Ranjan Samantara CEO and Director, of the Appellant Company, vide the Impugned Order, for the aforementioned contraventions in terms of Section 42 (1) of FEMA. This Appeal challenges the penalty of Rs. 70,00,000/-imposed on Shri Nihar Ranjan Samantara, contending that the penalty is too low.
2. Ld. Counsel for the Appellant Directorate submitted that the Branch Manager, of United Bank of India, Bangalore vide his letter No. UBI/ELC/ADV/IGNIS/2018 dated 15.02.2018 has confirmed that the bank had remitted amount totaling USD 75,25,000 (equivalent to Rs.33,42,10,330/-) on behalf of M/s Ignis Technology Solutions Pvt. Ltd. to M/s Supreme Software Technologies FZC (UAE) for import of goods on 9 different occasions and the Company M/s Ignis Technology Solutions Pvt. Ltd. did not appear to have received the goods and had not submitted the bills confirming the receipt of the goods to the Bank. Ld. Counsel further stated that in furtherance of a conspiracy, Shri G. Dhananjaya Reddy got opened two Companies in the name of M/s. Supreme Software Technologies FZC, Sharjah, UAE and M/s. DSR Impex, FZC in Sharjah Airport International Free Zone (SAIF), Sharjah, UAE on 02.03.2010 through Shri N. Ravichandran, Managing Director of M/s. Elsoft Technologies Pvt. Ltd. and Shri K. Seshasayanam, then employee of M/s. Nexxoft Infotel Limited. They opened Bank accounts in the name of M/s. Supreme Software Technologies FZC in Bank of Baroda, Dubai Main branch and in the name of M/s. DSR Impex in Bank of Baroda, Sharjah on the instructions of Shri Dhananjaya Reddy. Shri N. Ravichandran was authorised to operate both the accounts. All the expenses for opening of Companies and their bank accounts were borne by Shri G. Dhananjaya Reddy. Both the Companies had not hired/ purchased any office in Sharjah, UAE and were allotted only post box numbers. The said Companies were not engaged in manufacturing/ development/trading activity including that of software. However, the agreement dated 15.02.2010 between the Company M/s Ignis Technology Solutions Pvt. Ltd. and M/s. Supreme Software Technologies FZC, UAE preceded the date of issuance of licence for M/s. Supreme Software Technologies FZC, UAE on 02.03.2010 by Saif Zone Authorities. All the documents in respect of the two Companies, including cheque books, were handed over by S/Shri N. Ravichandran and Seshasayanam on their return to India to Shri G. Dhananjaya Reddy.
3. Ld. Counsel for the Appellant Directorate submitted that in furtherance of conspiracy, Shri Nihar Ranjan Samantara and Shri G.Dhananjaya Reddy submitted an agreement dated 15.02.2010 executed between M/s. Supreme Software Technologies represented by Shri N. Ravichandran and the Company regarding sale/purchase of permanent license of software IP Project Help Desk Suite. This agreement was submitted to M/s. United Bank of India in support of request for credit facility. Ld. Counsel contended that as on 15.02.2010, M/s. Supreme Software Technologies, FZC, UAE was not even in existence. The licence for the Company was issued by SAIF Zone Authorities only on 02.03.2010. The agreement entered between M/s. Supreme Software Technologies represented by Shri N. Ravichandran and the Company M/s Ignis Technology Solutions Pvt. Ltd. was valid for 90 days only i.e. up to 15.05.2010. As per the agreement, there was no mention in it regarding any advance remittance and on the contrary payment was required to be made after the receipt of software/ product. In furtherance of conspiracy, the Manager of M/s. United Bank of India permitted nine remittances totalling to US$ 75,25,000 (amounting to Rs. 33,42,10,330/-) to the current account number 90010200009399 held in the name of M/s. Supreme Software Technologies FZC, Sharjah with Bank of Baroda, Main Brach, Dubai, from the term loan account and cash credit account of the Appellant Company. The Amount totalling US$ 74,24,928/- got credited to the account of M/s. Supreme Software Technologies FZC, UAE, Sharjah.
4. Ld. Counsel for the Appellant Directorate submitted that the Respondent Shri Nihar Ranjan Samantara was the CEO and Director of the M/s Ignis Technology Solutions Pvt. Ltd. during the relevant time. Ld. Counsel cited the following portion of Paragraph 4.9 of the Impugned Order:
“I find from the records of the case that Noticee -2 was the Chief Executive Officer, shareholder and Director of Noticee 1 Company when the contravention was committed by the Company. Documents show that he was one of the joint authorized signatories of Noticee 1 Company, along with Noticee -3, for operating its accounts with M/s. United Bank of India. Noticee -2 and Noticee -3 only had signed all the requisitions for outward remittances including Form Al for remitting foreign exchange to the tune of US$ US$75,25,000 (equivalent to Rs. 33,42,10,330/- to M/s. Supreme Software Technologies FZC, UAE. The conduct of Noticee -2 indicate that he was in-charge of and was responsible for the conduct of Noticee -1 Company during the relevant period. Hence, I have no hesitation arriving at the conclusion that Noticee -2 has contravened the provisions of Section 10 (6) of FEMA, 1999 read with Regulation 6(1) of the Foreign Exchange Management (Realization, Repatriation & Surrender of Foreign Exchange) Regulations 2000 to the extent of US$75,25,000 (equivalent to Rs. 33,42,10,330/ in terms of Section 42 (1) of FEMA, 1999 and accordingly hold him guilty.”
Ld. Counsel argued that the Respondent Shri Nihar Ranjan Samantara admitted in his statement under Section 37 of FEMA, which is admissible evidence, that the software received was of no value, as well as having informed Shri G Dhananjaya Reddy about the same. Ld. Counsel further argued that the Respondent he did not exercise all due diligence to prevent such contravention, he was also aware of the transactions for which he signed the papers. Ld. Counsel submitted that the Respondent cannot escape his vicarious liability under Section 42 (1) of FEMA for the contraventions found established against the Company M/s Ignis Technology Solutions Pvt. Ltd.
5. Ld. Counsel Appellant Directorate prayed that the quantum of penalty was unreasonable and low which cannot be justified on the cannons of faire plan reason. Ld. Counsel urged that after having found the Respondent responsible for the conduct of business of the Company, maximum penalty should have been imposed as Section 13 (1) of FEMA provides for penalty up to three times the sum involved in the contraventions. Ld. Counsel alleged that judicial discretion was not exercised to impose penalty commensurate with the quantum of contravention. He therefore pleaded to enhance the penalty.
6. Ld. Counsel for the Respondent pleaded that the Respondent had been suffering from multiple serious ailments i.e. cardiological, neurological, pleural etc. since 2009, for which the Respondent had to undergo several prolonged treatments and surgeries. Given his debilitated physical condition, he was unable to participate fully in the day-to-day business activities and management of the Company. The medicines and sedatives were prescribed for managing his health, had a severe impact on his mental and rational faculties, sometimes even rendering him incapable to carry on his routine tasks.
7. Ld. Counsel for the Respondent also argued that the Appeals Nos. FPA-FE-04/CHN/2021 have been filed by M/s IGNIS Technology Solutions Pvt. Ltd. and FPA-FE-05/CHN/2021 have been filed by Shri Nihar Ranjan Samantara (Respondent herein). Ld. Counsel submitted that if the charges against the Company are not found to be proved then the provisions of Section 42 (1) of FEMA cannot be invoked against the Respondent. Moreover, there is no question of enhancement of penalty proposed by the Appellant Department, in view of the financial duress not only of the Company, but also of the Respondent herein. Ld. Counsel pleaded to dismiss the Appeal filed by the Directorate.
8. We have considered the rival submissions and the material on record. The ground taken in the Appeal for enhancement of penalty is to state that the penalty imposed by the Adjudicating Authority is low and is not proportionate to the quantum of contravention. The Appellant has stated that the Adjudicating Authority has ignored the provisions of Section 13 (1) of FEMA which provides for imposition of penalty up to thrice the sum involved in the contraventions. Section 13 (1) of FEMA, states:
“(1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization 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.
9. On reading of Section 13 (1) of FEMA, it is obvious that the maximum amount of penalty which can be imposed under the Section is three times the amount of contravention involved. From the language of the Section, it is clear that the Section has not prescribed either a fixed amount of penalty or minimum amount of penalty. It therefore, follows that the amount of the penalty which is to be imposed by the Ld. AA is a matter of discretion which, of course, is necessarily required to be exercised judiciously after taking into account the facts of the case and the evidence placed before it. Given the facts of the case and the evidence placed before the Ld. AA, we do not find that the Impugned Order is indiscreet. In fact, it is well reasoned and speaking.
10. The question as to when a penalty is to be regarded as either low or high is at best answered subjectively. In the facts and circumstances of the present case, it is seen that the Adjudicating Authority has not only taken notice of the facts of the case, but also has evaluated the evidence on record. In any case, there is no such requirement under the statute as to impose maximum penalty. The reading of the Impugned Order, therefore, reflects objectivity and judiciousness on the part of the Ld. AA.
11. The Hon’ble Supreme Court in State of MP and Ors. Vs. Bharat Heavy Electricals [(1997) 7 Supreme Court Cases 1] in its order dated 14.08.1997 held that in a statute prescribing the provision for penalty equal to ten times the amount of entry tax, the statute prescribed only a maximum limit and did not prescribe an irreducible amount depriving the assessing authority of any discretion in this regard. The stand of the State in the case supra conceded that the assessing authorities are not bound to levy fixed penalty equal to ten times the amount of entry tax. In fact, in the present case the statute (FEMA) itself provides for a penalty up to thrice the sum involved in such contravention and thereby gives explicit scope to the Adjudicating Authority to exercise its discretion, albeit judiciously, for imposition of penalty.
12. In view of the Appeal having failed to bring out the reasons that why the penalty imposed is low and as to how the Adjudicating Authority has not exercised its discretion judiciously, we observe that the order of the Adjudicating Authority cannot be interfered with. In view of the aforementioned discussions and observations, the Appeal No. FPA-FE-105/CHN/2020 Union of India through Deputy Legal Adviser, Directorate of Enforcement, Chennai fails and is dismissed. Applications pending, if any, are disposed of accordingly.
