FINLA ORDER

21.11.2024

This Order disposes of the Appeal No. FPA-FE-113/CHN/2020 filed by the Union of India through Deputy Legal Advisor, Directorate of Enforcement, Chennai, challenging the Order No. JD/CEZO/Z-1/03/2020 dated 10.03.2020 passed by the Joint Director, Enforcement Directorate, Chennai. The Ld. Adjudicating Authority has imposed penalty of Rs. 3,50,000/- on M/s Seven Hills Enterprises Pvt. Ltd. for contravention of Regulation 3 of the Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations 2000 and Regulation 3 of the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations 2000 to the tune of Rs. 3,81,90,151/- and Rs. 3,46,05,623/- respectively. Further penalty of Rs. 3,00,000/- has been imposed on M/s Thejasvin Securities Pvt. Ltd. for the contravention of the aforementioned Regulations 2000 to the tune of Rs. 12,02,888/- and Rs. 3,01,34,742/-.Sh. Kuppusamy Ramanujam, Director of the said two Companies has been laden with the penalty of Rs. 6,50,000/- by virtue of Section 42 (1) of the Foreign Exchange Management Act, 1999 (FEMA) for the aforementioned contraventions by the said two Companies.

2. Ld. Counsel for the Appellant has argued that the Ld. Adjudicating Authority ignoring the quantum of contraventions has imposed low penalties. It has failed to assign any justification for levying the low penalties. The Ld. Adjudicating Authority has abused the discretion vested under Section 13 of FEMA as the low penalty imposed are not commensurate with the quantum of contraventions. He further argued that the Ld. Adjudicating Authority erroneously or may be inadvertently missed out to penalize the Respondent for the contravention of Regulation 6 of Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations 2000. The Ld. Adjudicating Authority while making the correct finding that the funds were infused in Agricultural Land and Agricultural Activities yet failed to take note of the same in the course of the imposition of the penalty amount. Moreover, it is an admitted fact that the Appellant Companies did not issue non-convertible debentures as required under Regulation 5 of the Regulations 2000 ibid.

3. Ld. Counsel for the Appellant stated that Regulation 6 (1) of the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations 2000 permits borrowing in foreign exchange under the automatic route subject to the conditions specified under Schedule-I. Paragraph 1 to Schedule-I prescribes that the borrowings in foreign exchange by a person resident in India under the automatic route is subject to the terms and conditions set out in the Schedule. Although any Company registered under the Companies Act is eligible to borrow under the automatic route, the other conditions as set out are to be adhered including amount permitted to be borrowed, the purpose (end-use), maturity, all in all cost ceilings, security, pre-payment, parking, loan agreement, drawl of loans, reporting Debt Servicing etc. In the instant case, the borrowing has been made without any agreement or document to satisfy that the conditions specified have been followed. Paragraph 1 (x) of Schedule-I to Regulation 6(1) ibid specifically mandate the existence of a Loan agreement and stipulates that the Loan agreement entered into by the borrower with the overseas lender shall strictly conform with these Regulations. Paragraph 1 (xiii) of Schedule-I to Regulation 6(1) ibid stipulate that the borrower shall adhere to the reporting procedure as specified by the Reserve Bank from time to time. In the instant case, both the Appellant Companies have neither executed any agreements to verify whether the conditions (including the period of maturity, all in all cost ceilings etc.) have all been satisfied and have not reported the borrowing to the Reserve Bank.

4. Ld. Counsel for the Appellant alleged that the Ld. Adjudicating Authority failed to take notice of the Complaint No. T-3/CEZO/Z-1/