Adjudication under FEMA

By | August 14, 2015

Adjudication under FEMA

Procedure for adjudication

The procedure for adjudication and appeal has been specified in Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.

Holding of Enquiry – Adjudicating Authority appointed by Central Government will issue a show cause notice to person who is alleged to have committed the contravention, indicating nature of contravention. Time of minimum 10 days shall be given to show cause to the notice i.e. replying the notice. After considering the cause, if adjudicating authority is of the opinion that enquiry should be held, a notice fixing date of enquiry will be issued. The person can attend personally or through legal practitioner or authorised chartered accountant. He will be explained the charges and opportunity to produce any document or evidence will be given. Adjudicating Authority can summon and enforce attendance of person acquainted with facts and circumstances of the case to give evidence. If the person fails to attend, adjudication proceedings can continue in absence of such person. After hearing and evidence, adjudicating authority can pass order with reasons, duly signed. He can impose penalty if person is found to have contravened the provisions.

In Kanwar Natwar Singh v. Director of Enforcement (2010) 104 SCL 88 (SC), it was held that at the time of issue of show cause notice, it is not necessary to supply copies of any documents replied upon or even to furnish list of documents upon which reliance is placed, as the show cause notice is not for adjudication purpose but only for purpose of deciding whether an enquiry should be held or not. However, concept of fairness may require adjudicating authority to furnish copies of those documents upon which reliance has been placed by it to issue show cause notice.

Mens rea in penalty proceedings

Mens rea, i.e. guilty intention is not necessary for purposes of imposing penalty under FERA. Mere establishing ‘blameworthy conduct’ is enough to attract penalty – Director of Enforcement v. MCT M Corporation (P.) Ltd. 12 RLT 365 = AIR 1996 SC 1100 = (1997) 88 Comp Cas 449 (SC).

If foreign currency is seized from appellant by customs authorities at airport, burden of proving that foreign currency came into his possession lawfully is on appellant. – Ramzan Ali v. AD, ED (2002) 34 SCL 313 (ATFE).

Presumption as to documents

If any document is produced by any person or seized from any person or is received from any place outside India duly authenticated, it shall be presumed that the signature is true and handwriting is of the particular person. It will also be presumed that the contents of document are true. In other words, the burden of proof is on other party to prove that the document is not genuine or the contents of document are false. – section 39. -. – As per Foreign Exchange (Authentication of Documents) Rules, 2000, any document received from any place outside India purporting to have affixed, impressed or submitted thereon or thereto the seal and signature of any person who is authorised by section 3 of the Diplomatic and Consular Officer (Oaths and Fees) Act, 1948 to do any notarial acts, shall be deemed to be duly authenticated for the purposes of section 39 of FEMA.

Enforcement of orders of adjudicating authority

Person on whom penalty is imposed is required to make payment within 90 days of receipt of notice. If such payment is not made, he is liable to civil imprisonment. – section 14(1). Such civil imprisonment can be upto 6 months, if demand is for less that Rs. one crore. If demand exceeds Rs. one crore, civil imprisonment can be upto three years. [section 14(11)]. Detention order can be executed at any place in India. If he pays the amount, he shall be released.

Order for arrest and detention cannot be made unless a show cause notice is issued to the defaulter. After he appears, he will be asked to show cause why he should not be committed to civil prison. Pending inquiry, he can be released on furnishing security.

However, arrest can be made without show cause notice if adjudicating authority is satisfied (a) that the defaulter has dishonestly transferred, concealed or removed his property or he is refusing or neglecting to pay even if he has means to pay. [section 14(2)] (b) He is likely to abscond the local limits. – [section 14(3)].

If a person to whom show cause notice is issued does not appear before Adjudicating Authority, warrant of arrest can be issued. [section 14(4)].

Compounding of Contravention

Any contravention can be compounded if person who has committed contravention, makes an application. Compounding can be done within 180 days by officers authorised by Central Government. [section 15]. ‘Compounding’ is a compromise, where the person agrees to pay certain amount as compounding fee and the authority agrees to drop further proceedings in the matter after payment of compounding fees.

Compounding is permitted even when the matter is pending before Adjudicating Authority. However, compounding is not permitted if adjudication is complete and appeal has been filed by the person. Only one compounding is permissible in a period of three years.

Procedure has been prescribed in Foreign Exchange (Compounding Proceedings) Rules, 2000. Central Government will appoint ‘Compounding Authority’, who will be * Officer of Enforcement Directorate not below rank of Dy Director * Office of RBI not below rank of AGM.

RBI can compound offences if a person contravenes provisions of all sections of FEMA, except section 3(a). In case of offences u/s 3(a) (dealing essentially with hawala transactions), compounding of offences will be by Enforcement Directorate.

Minor technical lapses can be condoned by RBI – Minor offences or offences of technical nature can be condoned by RBI by giving administrative/cautionary notice. However, if party has already applied for compounding, then the proceedings will continue. Matters of sensitive or serious nature will be referred to Directorate of Enforcement – RBI circular No. 11 dated 31-7-2012.

Procedure and conditions for compounding by RBI – The provisions, conditions and guidelines relating to compounding of offences are contained in RBI Master Circular No. 9/2014-15 dated 1-7-2014 on ‘Compounding of Contraventions under FEMA, 1999’ [earlier Master Circular No. 9/2013-14 dated 1-7-2013].

RBI has clarified that provision of compounding is to provide comfort to citizens and corporate community while taking a serious view of the wilful, mala fide and fraudulent transactions. Offences like money laundering, national security concerns and/or involving serious infringements will not be compounded and will be informed to Department of Enforcement for further investigation.

Application for compounding shall be made in prescribed form (as given in the rules) to RBI along with fee of Rs 5,000. Only one compounding is permissible in a period of three years.

Application for compounding shall be made in prescribed form (as given in the rules) to Compounding Authority along with prescribed fee. Fee is payable by way of DD in favour of ‘Reserve Bank of India’, payable at Mumbai. Address in Compounding Authority, Foreign Exchange Department, 3rd Floor, Amar Building, Sir P M Road, Fort, Mumbai 400 001.

Compounding authority will hear the applicant and will pass order of compounding within 180 days. After the order, sum involved shall be paid within 15 days, by DD favouring ‘Reserve Bank of India’ payable at Mumbai.

If complaint was already filed with adjudicating authority, further proceedings will be dropped. However, if adjudication is over and appeal is pending, compounding of offence is not permissible.

If there was contravention because proper approval or permission of concerned Government or Statutory Authority was not obtained, first such approval should be obtained and then offence will be compounded.

Delegation of powers to regional offices of RBI for compounding – Powers have been delegated to Regional Offices of RBI to compound various offences within the limits prescribed – RBI AP (DIR) Circular No. 117 dated 4-4-2014.

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