Lakshmi Chand Jain Vs Joint Director (Appellate Tribunal under SAFEMA Delhi)
Tribunal Cuts FEMA Penalty but Confirms Violation: Unauthorised ‘Netting-Off’ of ₹1.72 Cr Foreign Commission Not Permitted
The Appellate Tribunal under SAFEMA/FEMA partly allowed the appeal of Shri M. Lakshmi Chand Jain, reducing the FEMA penalty from ₹30,00,000 to ₹10,00,000, while affirming that he violated Section 8 of FEMA read with Regulation 3 of the Realisation & Repatriation Regulations, 2000. The case involved foreign commission of ₹1,72,49,537, which the Appellant claimed to have “received” by setting off his commission against the value of goods imported from his foreign suppliers.
The Appellant argued that:
(1) the commission was never payable in cash but always adjusted as discounts on imports;
(2) such “netting-off” amounted to realisation of foreign exchange;
(3) the act caused no burden on forex reserves;
(4) RBI’s 2011 Circular permitted set-off;
(5) the violation was merely a procedural lapse without mala fide intent.
The Tribunal rejected these contentions, noting that:
- The Appellant never obtained RBI permission for netting-off, which is mandatory.
- The RBI Circular of 17.11.2011 delegates power only to AD Category-I Banks to approve set-off; it does not allow importers/exporters to self-adjust receivables & payables.
- The Appellant had also undervalued import invoices, as confirmed by Customs & Settlement Commission orders, showing lack of bona fides.
- FEMA aims at ensuring proper monitoring, indexing & repatriation of foreign exchange; private netting-off defeats the statutory framework.
- Under Section 13(1) FEMA, penalty is attracted once contravention is established- mens rea is irrelevant, as clarified in Shriram Mutual Fund (SC) & earlier rulings (MCTM Corporation).
The Tribunal accepted only the plea for proportionality, observing that the Appellant already faced liabilities under the Customs Act. Considering the nature of contravention, penalty was reduced to ₹10 lakh, with the earlier ₹10 lakh pre-deposit adjusted toward this amount. Accordingly, the appeal was partly allowed, only to the extent of reducing penalty, with all findings of FEMA contravention upheld.
