FEMA Director Liability: Penalty Deleted for Director Not Responsible for Company Affairs

Archana Traders Pvt. Ltd. Vs Assistant Director (Appellate Tribunal under SAFEMA, New Delhi)

FDI Utilised for Purchase of Commercial Property in Prohibited Real-Estate Sector—FEMA Contravention Upheld and Property Confiscated

Summary: The Appellate Tribunal under SAFEMA has held that foreign remittances received as FDI and utilised for purchasing commercial property amounted to investment in the prohibited real-estate business under the FEMA regulations then applicable. The Tribunal upheld the confiscation of the property, though it substantially reduced the monetary penalties imposed on the company and its managing director.

At the same time, the Tribunal completely deleted the penalty imposed on another director because the Enforcement Directorate failed to prove that she was in charge of, or responsible for, the company’s business when the contraventions occurred.

Facts of the case

M/s Archana Traders Pvt. Ltd. received six foreign inward remittances aggregating to approximately ₹4.13 crore between 2006 and 2009. Out of these funds, about ₹3.28 crore was utilised for acquiring commercial property at the mezzanine floor of Narain Manzil, Barakhamba Road, New Delhi.

The Enforcement Directorate found several contraventions, including:

• failure to report receipt of foreign investment to the RBI within the prescribed period;
• failure to allot shares within the stipulated time;
• delayed filing of Form FC-GPR;
• receipt of remittance from one foreign entity but allotment of shares to another entity; and
• utilisation of foreign investment for purchasing property in the prohibited real-estate sector.

The Adjudicating Authority imposed a penalty of ₹1 crore on the company and ₹60 lakh each on its directors, Smt. Prema Radhakrishnan and Shri Naveen Patil. It also ordered confiscation of the commercial property under Section 13(2) of FEMA.