Special Director Vs Joy of India (Karnataka High Court)
The Karnataka High Court dismissed an appeal filed under Section 42 of the Prevention of Money Laundering Act, 2002, challenging the Appellate Tribunal’s order that had set aside penalties and confiscation imposed under the Foreign Exchange Management Act, 1999 (FEMA). The connected writ petition challenging the original adjudication order was also disposed of as infructuous.
The proceedings originated from a complaint filed by the Directorate of Enforcement alleging violations of various provisions of FEMA and the applicable regulations. A show cause notice was issued, followed by an adjudication order dated 28 June 2016 holding the respondents guilty of contraventions under FEMA. Penalties were imposed, and certain bank balances along with immovable property in Bengaluru were ordered to be confiscated.
The Appellate Tribunal set aside the adjudication order after holding that the respondents were “persons resident in India” within the meaning of Section 2(v) of FEMA. It found that the respondents had stayed in India for more than 182 days during the preceding financial year before establishing the business and purchasing the property. It also noted that the respondents had approached the Reserve Bank of India (RBI) before purchasing the immovable property and were informed that prior permission was unnecessary if they satisfied the requirements of Section 2(v). The Tribunal further found that the purchase consideration had been remitted through legal banking channels, supported by Foreign Inward Remittance Certificates (FIRCs), and that the firm had been assessed to income tax from Assessment Year 2010-11 onwards.
