Sanjay Pai Vs Special Director (Appellate Tribunal Under SAFEMA Delhi)
SAFEMA Tribunal: CFO Liable For FEMA Violations By Company; Penalty Reduced But Liability Upheld
The Appellate Tribunal under SAFEMA partly allowed the appeal filed by Sanjay Pai, former Chief Financial Officer (CFO) of Plethico Pharmaceuticals Ltd., against the penalty imposed under the Foreign Exchange Management Act (FEMA).
The case related to contraventions arising from the company’s Foreign Currency Convertible Bonds (FCCB) issue of about USD 75 million (≈ ₹297 crore) for overseas acquisitions. The Enforcement Directorate alleged violations of FEMA provisions relating to raising foreign funds and borrowing in foreign exchange, and penalties were imposed on the company as well as its officers.
The appellant argued that:
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The FCCB was raised under the automatic route in compliance with RBI guidelines.
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Delay in obtaining the Loan Registration Number (LRN) was attributable to the RBI and not to the company.
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There was no loss of foreign exchange to the country nor any illegal gain.
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Directors and officers should not automatically be held liable merely because of their designation.
The Tribunal held:
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The appellant was the CFO of the company and actively involved in initiating and executing the FCCB issue, including the fund-raising process and utilisation of proceeds.
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Statements recorded during investigation established his active role in the transactions leading to the contraventions.
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Under Section 13 FEMA, penalty for breach of statutory obligations is a civil liability, and mens rea (guilty intention) is not required for imposing penalty.
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The principle laid down by the Supreme Court in SEBI v. Shriram Mutual Fund applies — penalty is attracted once contravention of statutory obligation is established.
However, considering the facts and circumstances of the case, the Tribunal found the penalty imposed on the appellant excessive and reduced it to ₹1,01,000, directing adjustment of the pre-deposit already made.
Result: The Tribunal upheld the liability of the CFO for FEMA contraventions committed by the company but reduced the penalty, partly allowing the appeal
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
This Order disposes of the Appeal No. FPA-FE-65/MUM/2015 filed by Shri Sanjay Pai, against the Order No.ADJ/05/B/SDE/SWN/2015/FEMA/828 dated 31.03.2015 (Impugned Order), passed by the Special Director, Enforcement Directorate, Government of India, Mumbai. The Ld. Adjudicating Authority (AA) imposed the penalty of Rs. 2,67,00,000/- on M/s Plethico Pharmaceuticals Ltd. for the contraventions of Section 6 (3) (b) of the Foreign Exchange Management Act, 1999 (FEMA) read with Para 4B of Schedule 1 to Regulation 5 (1) of the Foreign Exchange Management (Transfer or issue of Security by a person resident outside India) Regulation 2000, dated 03.05.2000 further read with Para 3 (1) (iv) of Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 to the extent of Rs. 297.07 Crores. Further penalty of Rs. 2,70,000/- was imposed on M/s Plethico Pharmaceuticals Ltd. for the contraventions of Section 6 (3) (d) of the Foreign Exchange Management Act, 1999 (FEMA) read with Para (1) (vi) & Para (1) (xi) of Schedule 1 to Regulation 6 (1) of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations 2000 further read with AP (DIR Series) Circular No. 5 dated 1st August , 2005 as amended by RBI’s AP (DIR Series) Circular No. 60 dated 21st May 2007 to the extent of Rs. 79,81,875/-. For the aforementioned contraventions Rs. 10,00,000/- and Rs. 10,000/- penalties were imposed among others on the Appellant Shri Sanjay Pai in terms of Section 42 of FEMA, vide the Impugned Order. The Appeals No. FPA-FE-56/MUM/2015 filed by M/s Plethico Pharmaceuticals Ltd., FPA-FE-62/MUM/2015 filed by Shashikant Patel and FPA-FE-63/MUM/2015 filed by Shri Chirag Patel respectively have already been dismissed either for non-prosecution and/or for non-compliance of the statutory provisions of FEMA.
