NRI’s Agricultural Land Confiscation Set Aside, Penalty Halved- Mens Rea Irrelevant, But Penalty Moderated-FEMA Omission No Shield: Tribunal Upholds Validity of Action, But Quashes Confiscation for Proportionality
Background
This Appeal arose from the order dated 09.01.2017 passed by the Special Director (Appeals-FEMA), Kolkata, which had affirmed the Order-in-Original dated 30.03.2016 issued by the Assistant Director, Enforcement Directorate, Lucknow.
Under the said order, a penalty of ₹15,00,000 was imposed on Shri Mohammad Iqbal Siddiqi, & his agricultural land in Barabanki District (U.P.) was confiscated for violating Section 6(3)(i) of FEMA, 1999, read with the relevant FEMA Regulations, 2000, governing the acquisition of immovable property in India by persons resident outside India.
The crux of the charge was that the Appellant, while being a Non-Resident Indian (NRI), had acquired agricultural land in India – a category of property that is expressly prohibited under FEMA for acquisition by NRIs or OCIs.
Appellant’s Contentions
The Appellant, raised several substantive & legal objections to the enforcement action:
Legitimate Source of Funds: It was submitted that the impugned property was purchased entirely from lawfully earned income during his employment abroad. There was neither any hawala remittance nor any illegal source of money involved.
Intended Non-Agricultural Use: The land, though classified as agricultural in records, was purchased for establishing a poultry farm & dairy farm, & not for agricultural operations. Hence, the transaction was not a deliberate breach of FEMA restrictions.
Disproportionate Penalty: The penalty imposed (₹15 lakh) was equivalent to the purchase value of the property, & the additional confiscation order amounted to double punishment– which, according to the Appellant, was unduly harsh & excessive.
Invalidity due to Omission of Section 6(3): The most crucial legal plea was that Section 6(3) of FEMA, which empowered RBI to regulate such acquisitions, had been omitted by the Finance Act, 2015, which came into force on 14.05.2015. Since the show-cause notice & complaint were both dated 22.05.2015, i.e., after the omission, the very foundation of the proceedings stood vitiated. As there was no saving clause preserving the right to prosecute, the omission, according to the Appellant, extinguished the liability. Reliance was placed on the Supreme Court’s decision in General Finance Co. v. ACIT [(2002) 7 SCC 1].
Stand of Directorate of Enforcement
The Department strongly defended the action & argued:
Mens Rea Not Required: FEMA contraventions are civil in nature; hence, the absence of intent or knowledge is immaterial. Even an inadvertent contravention attracts penalty.
Land Remains Agricultural: Regardless of its proposed use, the land continues to be agricultural until formally converted through the State’s prescribed procedure. Thus, the purchase violated Regulation 3(a) of the Acquisition & Transfer of Immovable Property Regulations, 2000.
Omission Took Effect Only in 2019: The omission of Section 6(3) by Finance Act 2015 was not immediately enforceable. It became effective only on 15.10.2019 via Notification S.O. 3715(E).
Hence, the complaint & show-cause notice of May 2015 were perfectly valid under the then existing law.
Supportive Precedents: The Department relied on Mithilesh Kumari v. Prem Behari Khare [(1989) 2 SCC 95], Shree Bhagwati Steel Rolling Mills [(2016) 3 SCC 643]*, & the Tribunal’s own decision in Shell India Markets Pvt. Ltd. & Nitin Prasad (2024), which recognized the continued applicability of repealed or omitted provisions under the General Clauses Act, 1897.
Tribunal’s Observations & Analysis
1. Whether Section 6(3) was in Force on 22.05.2015
The Tribunal held that although the Finance Act, 2015 introduced the omission clause, its enforcement date was deferred. The actual notification making it effective was issued only on 15.10.2019. Therefore, as on the date of complaint (22.05.2015), Section 6(3)(i) remained operative, & the initiation of proceedings was lawful & valid.The Tribunal referred to RBI Notification No. FEMA 21(R)/2018-RB dated 26.03.2018, which was still issued under Section 6(3)(i) — further proving that the provision continued in force till 2019.
2. Applicability of General Clauses Act on Omitted Provisions
A significant part of the order is devoted to analyzing whether omission of a statutory provision is equivalent to repeal. The Tribunal drew extensively from the Supreme Court’s landmark ruling in Fibre Boards Pvt. Ltd. v. CIT [(2015) 10 SCC 333], where it was held that: “The word repeal includes repeal by way of express omission; therefore, Sections 6, 6A & 24 of the General Clauses Act would equally apply in cases of omission.” Relying on Fibre Boards & Shree Bhagwati Steel Rolling Mills, the Tribunal concluded that liabilities, proceedings, & penalties incurred under an omitted section continue to survive unless the legislature explicitly provides otherwise. Earlier contrary rulings (Rayala Corporation, Kolhapur Cane Sugar Works) were noted to be per incuriam as they failed to consider Sections 6A & 24 of the General Clauses Act. Hence, even assuming that Section 6(3)(i) stood omitted in 2015, the proceedings lawfully initiated before its enforcement would not be nullified.
3. Mens Rea Irrelevant for FEMA Contraventions
The Tribunal reaffirmed the settled legal position that FEMA proceedings are civil in character & that intention or knowledge is irrelevant. Citing Chairman, SEBI v. Shriram Mutual Fund [(2006) 5 SCC 361] & Director of Enforcement v. MCTM Corporation Pvt. Ltd. (1996), it reiterated: “Penalty is attracted as soon as contravention is established, regardless of intent. Mens rea is not a prerequisite unless expressly required by statute.”
4. .Nature of the Property
It was undisputed that the impugned land was classified as agricultural. The Tribunal emphasized that until the State Government issues an order converting its use, the character of land cannot be altered merely by intention or proposed commercial activity. Hence, the acquisition did indeed contravene FEMA’s restrictions applicable to NRIs.
5. Proportionality of Penalty & Confiscation
While upholding the contravention in principle, the Tribunal took a balanced & equitable approach regarding the quantum of penalty. It found that:
- The funds used were legally earned.
- There was no misrepresentation or concealment.
- The property was purchased for legitimate livelihood
Thus, imposing full-value penalty & confiscating the property was considered excessive & inequitable. Recognizing that ₹7,50,000 had already been deposited as pre-deposit, the Tribunal reduced the total penalty to ₹7,50,000 & set aside the confiscation order, observing that this would sufficiently meet the ends of justice.
Key Legal Takeaways
- Omission equals repeal – proceedings under an omitted provision remain valid unless expressly annulled.
- Mens rea not essential for FEMA contraventions – strict civil liability applies.
- Confiscation under Section 13(2) FEMA is discretionary, not automatic.
- Proportionality doctrine applies in economic laws – penalties should match the gravity & intent of the breach.
- Tribunal’s pragmatic approach underscores that procedural breaches without mala fides deserve moderation, not confiscation.
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