Under FEMA, civil penalties for contraventions of FDI norms do not require mens rea; breach of statutory obligation itself attracts penalty. Investment by NRI treated as on repatriation basis if shares not issued and amounts repatriated.

Headnote:(A) Foreign Exchange Management Act, 1999 - Sections 6(3)(b), 13(1), 42, 36(3) - Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 - Regulation 5(1), 5(3)(ii) - Schedule 1, Paragraphs 8 and 9(1)(A) - Schedule 4 - Penalty for contravention of FDI reporting and allotment requirements - Mens rea not required for civil penalties under Section 13 - Principle of proportionality in penalty imposition. (Paras 1, 9-16, 18)

(B) Mens rea - Penalty under Section 13(1) of FEMA is attracted upon contravention of statutory obligation; intention or guilty mind is irrelevant - Reliance on Chairman, SEBI v. Shriram Mutual Fund and Director of Enforcement v. MCTM Corporation - The case of Hindustan Steel v. State of Odisha distinguished as it pertained to criminal/quasi-criminal proceedings. (Paras 15-16)

(C) Non-repatriation basis - Investment by NRI on non-repatriation basis under Regulation 5(3)(ii) read with Schedule 4 prohibits repatriation of capital and appreciation - Where no shares are issued and amounts are repatriated, the investment is treated as on repatriation basis under Regulation 5(1) and Schedule 1. (Paras 10-11)

(D) Cross-examination - Denial of opportunity to cross-examine the manager and managing director does not prejudice the case when the contraventions are established through bank statements and statutory filings independent of the statements. (Para 17)

Facts of the case:
The appellant company received Rs. 7.21 crore from the individual appellant, an NRI, as share application money between November 2011 and January 2012. The company did not issue shares, did not report the receipt to RBI, and showed the amount as long-term borrowing in its balance sheet. Out of the amount, Rs. 2.52 crore was repatriated to the individual appellant after 180 days without RBI permission. The remaining Rs. 4.69 crore was retained without allotment of shares. The Adjudicating Authority imposed penalties of Rs. 10 lakh and Rs. 2 crore on the company and Rs. 1 lakh and Rs. 20 lakh on the individual appellant for contraventions under Section 6(3)(b) read with Regulation 5(1) and Schedule 1 paragraphs 9(1)(A) and 8. The Tribunal partly allowed the appeals and reduced the penalties.

Findings of Court:
The Tribunal held that the investment was on repatriation basis because no shares were issued and repatriation occurred, thus not covered by Schedule 4. The contraventions of non-reporting and non-allotment/refund within 180 days were established. Mens rea is not required. The penalties were reduced to Rs. 62 lakh on the company and Rs. 6.2 lakh on the individual appellant for all three contraventions.

Issues: The main issues were whether the investment was on repatriation or non-repatriation basis, and whether the penalties were justified and proportionate.

Ratio Decidendi: The Tribunal ruled that the transfer of funds from an NRI to an Indian company without issuing shares and with subsequent repatriation brings the transaction under Regulation 5(1) and Schedule 1, not under the non-repatriation route of Schedule 4. Contraventions of reporting and time limits for allotment/refund are civil violations attracting penalty under Section 13(1) without need to prove intent. The quantum of penalty should be proportionate to the gravity of contravention.

Result: Appeals partly allowed; penalties reduced.

FINAL ORDER

25.03.2026

This Order disposes of the Appeals Nos. FPA-FE-102/CHN/2019 filed by M/s Keshav Castings Private Ltd. (KCPL) and FPA- FE-103/CHN/2019 filed by Shri Sanjay Kumar Agarwal, against the Order No. ADE/SRO/HYZO/09/2019 dated 24.09.2019 (Impugned Order), passed by the Additional Director, Enforcement Directorate, Government of India, Chennai. The Ld. Adjudicating Authority (AA) imposed the penalty of Rs. 10,00,000/- on M/s Keshav Castings Private Ltd. for the contraventions of Section 6 (3) (b) of the Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 5 (1) (i) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulation 2000, in terms of Paragraph 9 (1) (A) of Schedule 1 to the said Regulation to the extent of Rs. 7,21,00,000/-. Further penalty of Rs. 1,00,000/- was imposed on Shri Sanjay Kumar Agarwal, Managing Director of Company for the contravention of aforementioned provisions in terms of Section 42 of FEMA. Penalties of Rs. 2,00,00,000/- and Rs. 1,00,00,000/- were imposed on M/s Keshav Castings Private Ltd. for the contraventions of Section 6 (3) (b) of the FEMA read with Regulation 5 (1) (i) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulation 2000, in terms of Paragraph 8 of Schedule I to the said Regulations to the extent of Rs. 4,69,00,000/- and Rs. 2,52,00,000/- respectively. The contravention in terms of Paragraph 8 of Schedule I to the said Regulations to the extent of Rs. 4,69,00,000/- occurred for not issuing the shares and by retaining the said amount without the permission of the Reserve Bank of India (RBI) beyond the expiry of the period of 180 days from the date of its receipt. The contravention in terms of Paragraph 8 of Schedule I to the said Regulations to the extent of Rs. 2,52,00,000/- occurred for refunding the amount to the individual Appellant, without the permission of RBI after the expiry of 180 days from the date of receipt. Penalty of Rs. 20,00,000/- and Rs. 10,00,000/- were imposed on Shri Sanjay Kumar Agarwal for the aforementioned contraventions in terms of Section 42 of FEMA. The Appellants have complied with the Order dated 19.03.2025 of this Tribunal to make pre-deposit of 20% of the penalty amounts by way of FDRs in the name of the Respondent Directorate.

2. Ld. Counsel for the Appellant submitted that the Impugned Order is in violation of the principles of natural justice since their prayer to cross examine the Manager and the Managing Director was declined. Ld. Counsel contended that an amount of Rs. 4,86,00,000/- was remitted and only Rs. 2,35,00,000/- was retained. The amounts were remitted as shares could not be allotted due to near closure of the Company because of lack of business. The Appellants were under the bona fide belief that there was no requirement to submit the details of transactions between the Director of Company and the Company unless the investment cap is exceeded beyond the amount stipulated. Ld. Counsel pressed that the Show Cause Notice (SCN) did not allege any misuse of the funds received from the person resident outside India. The SCN also did not allege any intentional act on their part. He cited the Judgment of the Hon’ble Supreme Court in the case of Hindustan Steel vs. State of Odisha, to plead that no penalty could be imposed.

3. Ld. Counsel for the Appellant further argued that the contravention by them was only of non-reporting. He stated that in such cases maximum penalty could not be of amount more than Rs. 2,00,000/-. Ld. Counsel pleaded that in view of Sub-Section 3 of Section 36 of FEMA the provisions of the Income Tax Act, 1961 are applicable and hence passing of the Impugned Order after four years could not be allowed. Ld. Counsel contended that the Complaint under FEMA itself specified that the amount was received on non-repatriation basis. Ld. Counsel also pleaded that no penalty was imposable on Shri Sanjay K

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2026 Supreme(Online)(ATFP) 201

APPELLATE TRIBUNAL FOR FORFEITED PROPERTYM/s Keshav Castings Private Ltd. Shri Sanjay Kumar Agarwal v. The Additional Director Directorate of Enforcement ChennaiFPA-FE-102/CHN/2019

Under FEMA, civil penalties for contraventions of FDI norms do not require mens rea; breach of statutory obligation itself attracts penalty. Investment by NRI treated as on repatriation basis if shares not issued and amounts repatriated.

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
M/s Keshav Castings Private Ltd. Shri Sanjay Kumar Agarwal v. The Additional Director Directorate of Enforcement Chennai
FPA-FE-102/CHN/2019