HC Upholds Tribunal’s Decision of Reducing the Penalty as ED Fails to Provide a Valid Basis for Imposing the Maximum Penalty

Case Details: Special Director v. Jaipur IPL Cricket (P.) Ltd. - [2023] 157 taxmann.com 283 (Bombay)

Judiciary and Counsel Details

• • K.R. Shriram & Dr Neela Gokhale, JJ.
  • Ashish Chavan & Zishan Quazi for the Appellant.
  • Rohan P. Shah, Roy Deep, Srisabari Rajan, Manish Rastogi & Prajwal Tiwari for the Respondent.

Facts of the Case

In the instant case, deposits were made during the bidding process by Respondent and its directors and promoters were in contravention of the provisions of FEMA and accordingly, show cause notices were issued to Respondent for contravention of section 6(3)(b) of FEMA read with regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 and paragraph 8 of schedule 1 further read with regulation 5 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.

It was alleged that Respondent and its promoters contravened the provisions of FEMA and accordingly, four separate show cause notices were issued by the Special Director of Enforcement to Respondent and its promoters.

Further, in the order passed by the Special Director, it was recorded that the respondents were guilty of contravening section 6(3)(b) of FEMA read with regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 and regulation 5 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.

Consequently, in the exercise of powers under section 13(1) of FEMA, the Special Director imposed a penalty on each respondent in respect of separate show cause notices. Subsequently, an appeal was preferred before the High Court to reduce the penalty imposed by the Special Director.

High Court Held

The High Court observed held that where Special Director of Enforcement had simply re-produced provisions of FEMA to justify imposition of maximum penalty under section 13 of FEMA without any discussion or justification pertaining to basis for imposing maximum penalty and juxtaposing this with alleged acts attributed to each individual, impugned order passed by Tribunal reducing quantum of penalty was justified.