Rs. 2 Lakh Penalty Was Justified for Technical Non-compliances Where Substantive Provisions of FDI Were Met Later

Case Details: Union of India v. OSR Infra (P.) Ltd. - [2023] 153 taxmann.com 114 (SAFEMA-New Delhi)

Judiciary and Counsel Details

• • Balesh Kumar, Member
  • A.R. Aditya & Ms Anwesha Mishra, Advs. for the Appellant.
  • Ms. Y. Siri Reddy, Adv. for the Respondent.

Facts of the Case

In the instant case, a question was kept before the Appellate Tribunal whether the maximum amount of penalty that can be imposed under section 13 is three times the amount of contravention involved.

The Foreign Direct Investment (FDI) of value Rs. 5.41 crore was received by the Respondent Company. The Respondent had failed to comply with certain provisions of Foreign Exchange Management (Transfer or Issue of Security By a Person Resident Outside India) Regulations, 2000, issued under section 6(3)(b).

Consequently, a show cause notice charging the respondent for said contraventions was issued but by then respondent had already complied with said provisions, reflecting that there was no intention on the part of the respondent to indulge in contravention of substantive provisions.

Hence, charges under show cause notice could have only been for non-adherence to prescribed time limits to meet compliance to substantive provisions of said Regulations.

Later, it was noted that contraventions were technical in nature as substantive provisions of Regulations had been complied with belatedly. The Adjudicating Authority had imposed separate penalties for respective delays involved in fulfilling compliances.

The Appellant pleaded in an appeal that the penalties imposed were very low without having considered the quantum of contravention involved.

SAFEMA Held

The Appellate Tribunal Safema observed that in the present circumstances, the contraventions were not of substantive provisions, and penalties of Rs. 2 lakhs imposed on respondent met the end of justice.

Thus, the Appellate Tribunal Safema held that the order of the Adjudicating Authority could not be interfered with and, therefore, the appeal against same was to be dismissed. Further, it was also held that the maximum amount of penalty that can be imposed under section 13 is three times the amount of contravention involved.

List of Cases Referred to

• • Cognizance for Extenstion of Limitation, In re [2022] 134 taxmann.com 307/441 ITR 722 (SC) (para 2)
  • State of M.P. v. Bharat Heavy Electricals 1988 taxmann.com 1267 (SC) (para 10).