Union of India Vs Tamilnad Mercantile Bank Ltd. (Appellate Tribunal Under SAFEMA Delhi)
SAFEMA Tribunal Refuses to Confiscate Tamilnad Mercantile Bank Shares Despite FEMA Violations; Upholds Adjudicating Authority’s Discretion
The Appellate Tribunal under SAFEMA dismissed the Union of India’s appeal seeking confiscation of shares of Tamilnad Mercantile Bank (TMB) that had been transferred to foreign investors without prior RBI approval. The Directorate of Enforcement argued that, having upheld FEMA contraventions relating to the transfer of bank shares, escrow arrangements, guarantees, deposits, and foreign exchange transactions, the Adjudicating Authority ought to have exercised its powers under Section 13(2) of FEMA to confiscate the shares in addition to imposing substantial monetary penalties.
The Tribunal held that Section 13(2) of FEMA confers a discretionary, and not mandatory, power of confiscation. It observed that the statutory language-particularly the use of the expression “may, if he thinks fit”-makes it clear that confiscation is an additional discretionary measure which may be ordered alongside penalty where justified by the facts of the case. The Adjudicating Authority had passed a detailed and reasoned order imposing penalties on the bank, Standard Chartered Bank and various officials but consciously chose not to confiscate the shares. The Tribunal found no material to suggest that this discretion had been exercised arbitrarily or without application of mind.
The Tribunal further held that the Enforcement Directorate had failed to demonstrate how non-confiscation resulted in a miscarriage of justice or why the Adjudicating Authority’s exercise of discretion warranted appellate interference. Relying on the Supreme Court’s decision in State of M.P. v. Bharat Heavy Electricals, it reiterated that where a statute prescribes only the maximum penalty or provides discretionary powers, the adjudicating authority retains the discretion to determine the appropriate consequence. Accordingly, the Tribunal dismissed the Union of India’s appeal and upheld the Adjudicating Authority’s decision not to confiscate the TMB shares despite the established FEMA contraventions.
SAFEMA Tribunal held confiscation under Section 13(2) of FEMA is discretionary and upheld the decision not to confiscate TMB shares.
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
This Order disposes of the Appeal No. FPA-FE-28/CHN/ 2021 filed by the Union of India through Deputy Legal Adviser, Directorate of Enforcement, Chennai against the Adjudication Order No. SDE/SRO/CEZO/10/2020(SK) dated 14.08.2020 (Impugned Order), passed by the Special Director, Enforcement Directorate, Government of India, Chennai, (Adjudicating Authority-AA). Ld. AA has imposed penalty of Rs. 11,33,21,688/-plus Rs. 5,66,60,844/- on the Tamilnad Mercantile Bank Ltd. (TMBL) for contravention of Section 6 (3) (b) of Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 4 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulation, 2000. Ld. AA has further imposed penalty of Rs. 34,00,00,000/- plus Rs. 66,00,00,000/- on the Standard Chartered Bank (SCB) for the contraventions of Section 6 (3) (f) of FEMA read with Regulation 3 of the FEM (Deposit) Regulations, 2000 and Section 6 (3) (j) of FEMA read with Regulation 3 of the FEM (Guarantees) Regulations, 2000 respectively. Ld. AA has also imposed penalties ranging from Rs. 1,00,00,000/- to Rs. 5,00,000/- on the individual persons who were Chairman, Managing Director & CEO, Directors and Company Secretaries of TMBL at relevant points in time. The matter relating to SCB the officer concerned has suffered penalty of Rs. 40,00,000/-. Further penalty of Rs. 35,00,000/- has been imposed on Shri M G M Maran for the contravention of Section 4 & 8 of FEMA, Regulation 3 & 4 of FEM (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 and Regulation 3 of FEM (Foreign Currency Accounts by a person resident in India) Regulation 2000.
