The Special Director, Direcrorate of Enforcement (Wr) v. Manoj Badale

Order (Rs. In Crores) 1/2020 JIPL

32.30

7.00 1/2021 Ranjit Bartakur

6.40

1.00 6/2021 Raghuram Iyer

5.10 Nil 8/2021 Fraiser Castellino

6.40

1.00 7/2021 EMSH, Mauritius

18.90

2.00 3/2021 Bishwarnath Bachun

2.45 Nil 9/2021 Samila Sivaramen

2.45 Nil 5/2021 Barbara Jacqueline Haldi

2.45 Nil 4/2021 Suresh Chellaram

3.70 Nil 2/2021 ND

Investments LLP

2.00

2.00 2/2020 Manoj Badale

16.20

2.00 TOTAL

98.35

15.00

¶9Mr. Ashish Chavan, learned Counsel for Appellants has criticized the findings of the Tribunal by saying that the Tribunal ought not to have taken a lenient view and has erred in holding the contraventions of the provisions of FEMA by Respondents as merely technical. Mr. Chavan submitted that the Tribunal ought to have appreciated that the arrangement of the flow of funds by Respondents was made to route the investments through Mauritius as the funds flowing into India from UK was not permissible especially 18/28 901-911-FEMA-1-2020+-J.doc in the light of admitted fact that they did not have the approval of the RBI and the FIBP. Further, the Tribunal has not recorded any justification in reducing the quantum of penalty especially in view of the gross contraventions of the provisions of the FEMA by Respondents which caused a significant loss to Government exchequer. So saying, he proposed as many as sixteen questions of law terming them to be 'Substantial Questions of Law' that needed to be determined by this Court.

¶10On the other hand, Mr. Rohan Shah, Counsel appearing for Respondents defended the impugned order by drawing our attention to various decisions of the Constitutional Courts pertaining to the scope of judicial review under Section 35 of the FEMA, laying down the parameters on which an Appeal of such a kind be entertained and the justification of interference with a finding of fact as a question of law. He also canvassed the doctrine of proportionality vis-a-vis justification of interference by an Appellate Court. He took us through the order passed by the Special Director of Enforcement and pointed out the absence of any reasoning or justification for imposing maximum penalty as provided in the Act. The charges in the show-cause notices being answered in the affirmative yet there is no discussion on the quantum of penalty imposed on Respondents. On the contrary, the Tribunal has specifically dealt with each charge against Respondents individually and collectively and reasoned as to 19/28 901-911-FEMA-1-2020+-J.doc how the exorbitant penalty imposed on Respondents individually is inversely proportionate to the act attributed to each Respondent and thereby wholly unjustified. In fact, there is a categorical finding of perversity in the order passed by the Special Director. He has relied upon the following cases: Scope of judicial review under Section 35 of FEMA.

(1) Mohtesham Mohd. Ismail v. Enforcement Directorate,3

(2) Union of India v. Amarjeet Singh,4

(3) SEBI v. Mega Corp. Ltd.,5

(4) Sir Shadi Lal Sugar and Geeneral Mills Ltd. v. CIT ,6 Doctrine of proportionality – Interference of Court when justified.

(5) Excel Crop Care Ltd. v. CCI,7

(6) Hindustan Steel Ltd. v. State of Orissa,8

(7) Coimbatore District Central Coop. Bank v. Employees Assn.,9 Section 42(1)- "a person in-charge and responsible for the conduct of the affairs of a company"

(8) Girdhari Lal Gupta v. D. H Mehta,10

(9) Katta Sujatha (Smt.) v. Fertilizers and Chemicals Travancore Ltd. & Anr.11

¶11We have perused the order passed by the Special Director as well as the impugned order. We have also gone through the proposed

(2007) 8 SCC 254. 2009 SCC OnLine Del. 995. 2022 SCC OnLine SC 361.

(1987) 4 SCC 722.

(2017) 8 SCC 47.

(1969) 2 SCC 627.

(2007) 4 SCC 669.

(1971) 3 SCC 189.

(2002) 7 SCC 655. 20/28 901-911-FEMA-1-2020+-J.doc questions of law as suggested by Appellant in the Appeal memos.

¶12At the outset, the sixteen questions placed before us as 'Substantial Questions of law' appear to be mere repetitions of each other albeit having only an interchangeability of words. We thus, do not find any reason to dwell on the questions individually as placed for consideration by Appellant. The only issue that arises for our consideration is whether interference by the Tribunal in the order of the Special Director is justified on the touchstone of the doctrine of proportionality.

¶13The order of the Special Director clearly indicates that although satisfaction in respect of contravention of the provisions of the FEMA has been recorded, there is no explanation or any discussion in respect of the basis on which maximum penalty has been imposed. Mr. Chavan, in fairness, agreed. It appears that the Special Director has taken the sum involved in the contravention as alleged by the Investigating Officer of the Enforcement Directorate and multiplied it by three to arrive at the quantum of penalty as contemplated by Section 13(1A) of the FEMA. The Tribunal, on the other hand, after going through each charge, has recorded a clear finding that an exorbitant penalty has been imposed upon the individuals arrayed without recording any findings on the specific roles of said individuals. Judicial precedents clearly established that the onus of proving the role of an individual and specifically proving 21/28 901-911-FEMA-1-2020+-J.doc that the said person was in day-to-day management of the affairs of the company is that of the Department. The Tribunal after going through the facts of the matter has also found the Department to have completely failed in the discharge of this burden of proof. The Special Director has simply re-produced the provisions of the FEMA to justify the imposition of penalty without any discussion on the corresponding act attributed to each individual to deserve such a penalty. The imposition of maximum penalty is justified only if it is shown that the person was in-charge and responsible for the functioning of the company, having some motive to benefit from the transaction in question. The Tribunal has particularly noted the absence of mala fides and mens rea on the part of Respondents. The Tribunal has further held that the Special Director has not discussed any specific role of any individual Respondent to justify the invocation of the provisions of the FEMA and further calling for imposing of maximum penalty.

¶14On the merits of the case, the Tribunal has observed that there was no other way for Respondents to participate in the bidding process for the IPL franchise organised by the BCCI except by making remittance directly to the BCCI, which essentially accounts for a major portion of the total remittances in question.

(a) The Tribunal has found Ranjit Barthakur (Respondent in FEMA Appeal No.1 of 2021), the Chairman and Director of JIPL to 22/28 901-911-FEMA-1-2020+-J.doc never have been responsible for regulatory compliance on day-to-day basis and neither was he a party to nor did he control or take any decision with regard to subject remittances.

(b) Fraiser Castellino (Respondent in FEMA Appeal No.8 of 2021) ceased to be a Director on 1st October 2008 and subsequently, he was not involved with the business or activities of JIPL. Thus, the Tribunal has vindicated him from any violation as alleged by the Enforcement Directorate.

(c) Raghuram Iyer (Respondent in FEMA Appeal No.6 of 2021) has also been absolved on the ground that his main role in the organisation was generation of revenue through the sale of commercial rights in connection with the cricket team and its players and his responsibility was for sales and marketing activity of the franchise. Moreover, he resigned from the directorship of JIPL in 2016. All the respective remittances took place when Raghuram Iyer was not a Director and hence, imposition of maximum penalty on him was held to be completely unjustified.

(d) Bishwarnath Bachun (Respondent in FEMA Appeal No.3 of 2021) did not have any role in the daily operations of EMSH and was not in overall control of its business. The remittances attributed to Bishwarnath Bachun were made at a time when he was not even involved with the affairs of the group. 23/28 901-911-FEMA-1-2020+-J.doc

(e) Samila Sivaramen (Respondent in FEMA Appeal No.9 of 2021) was also a representative of Tresco International Limited, one of the shareholders of the EMSH and also had no role in the daily operations of the EMSH. She was not even aware of the remittances attributed to her as EMSH was neither in existence nor had operational bank account at that point of time. There is no justification of imposing any penalty on Samila Sivaramen.

(f) In reference to Barbara Haldi (Respondent in FEMA Appeal No.5 of 2021), the Tribunal has found her to be mere nominee Director of EMSH and had no role in the daily operations of EMSH. She was also not aware of any remittances and in the absence of mens rea, imposition of penalty is totally unjustified.

(g) Suresh Chellaram (Respondent in FEMA Appeal No.4 of 2021) was found to be under bona fide belief that the remittances made by the EMSH were legal and were made for business emergencies. The intention of routing money through offshore entities for meeting financial needs of JIPL were clearly set out and thus, when there was requirement of payment to be made in relation to franchise, it was only inevitable that the money would be arranged by promoter and in such a scenario, the remittance made was purely business decision and not a deliberate act by Suresh Chellaram to flout any law or regulation in force at the relevant time. 24/28 901-911-FEMA-1-2020+-J.doc

(h) In so far as Manoj Badale (Respondent in FEMA Appeal No.2 of 2020) is concerned, the Tribunal has found that although there was no mens rea on the part of Badale, it is an admitted position that Badale arranged for payments and although the acts of Badale are held to be under bona fide belief that the remittances made by him were legal, Badale and ND Investments LLP are responsible for the transactions in which the contraventions have happened. However, the Tribunal did not find any justification for imposing maximum penalty and has reduced the same.

¶15Overall, the Tribunal has found that firstly, no loss has been caused to exchequer; secondly, the remittances have come into India and remained in India. This is not a case where any foreign exchange has gone out of India; thirdly, the remittances were utilised for the purposes for which they were intended and there is not even an allegation of utilization of the money for extraneous purposes; fourthly the entities have not gained any benefit whatsoever and in fact suffered considerable financial detriment as shares having beneficial transferable interest have not been issued against remittances to the said entities for the past 11 years; and fifthly, 'Rajasthan Royals' franchise has participated in the IPL since 2008 with no other allegation of contravening any FEMA provisions or regulations made thereunder. Thus, the Tribunal found no justification in the order passed by 25/28 901-911-FEMA-1-2020+-J.doc the Special Director for imposing maximum penalty on Respondents and contraventions are categorized at best as technical and venial.

¶16In the decision of the Hon'ble Supreme Court of India in the case of Sir Shadilal Sugar and General Mills (supra), while dealing with the issue as to whether there was justification for an interference by the High Court in a finding of fact by transforming the same into the question of law, the Apex Court has held as follows: "14........This Court reiterated that findings on questions of pure fact arrived at by the Tribunal were not to be disturbed by the High Court on reference unless it appeared that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come; and this was so, even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. In other words, such a finding could be reviewed only on the ground that there was no evidence to support it or that it was perverse.

¶15........Where an ultimate finding on an issue was an inference to be drawn from the facts found, on the application of any principles of law, there would be a mixed question of law and fact, and the inference from the facts found was in such a case, a question of law. But where the final determination of the issue equally with the finding or ascertainment of the basic fact did not involve the application of any principle of law, an inference from the facts could not be regarded as one of law.........."

¶17In the instant case, there is a finding of fact by the Tribunal and all the relevant facts have been considered in a proper light. The Tribunal has arrived at its conclusion on the basis of evidence to support and after analysing the said evidence. The findings are far from being perverse. Thus, no question of law arises in the case. The 26/28 901-911-FEMA-1-2020+-J.doc question raised by Appellant relating to justification of the reduction of penalty imposed by the Special Director is purely based on facts and no question of law even remotely, arises from the same.

¶18We find that in fact no justification has been recorded by the Special Director to impose maximum penalty as opposed to the Tribunal having considered relevant material has interfered and reduced the penalty. We do not find it proper to transgress the limits of this Court's jurisdiction, preferring the view of the Tribunal or that of the Special Director, one way or the other, in regard to factual appreciation of the finding of facts in the matter.

¶19The parameters for imposition of penalty have also been considered by the Hon'ble Supreme Court of India in Excel Crop Care Ltd. (supra) and it has been held as follows: "42. ........Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the Assessing Officer keeping relevant factors in mind........Penalty proceedings are not to be initiated, as has been noticed by the Wanchoo Committee, only to harass the Assessee. The approach of the Assessing Officer in this behalf must be fair and objective."

¶20In Hindustan Steel Ltd. (supra), the Apex Court has held as follows: "8. ......An order imposing penalty for failure to carry out statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will also not be imposed because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a 27/28 901-911-FEMA-1-2020+-J.doc matter of discretion of the authority to be exercised judicially or on a consideration of all relevant circumstances..........."

¶21In Coimbatore District Central Co-operative Bank (supra), the Supreme Court has explained the concept of proportionality in the following manner: "18. 'Proportionality' is a principle where the Court is concerned with the process, method or manner in which the decision maker has ordered is priorities, reached a conclusion or arrived at a decision. The very essence of decision making consists in the attribution of relative importance to the factors and considerations in the case.........

19.........the principle of proportionality needs to be imbibed in to any penalty imposed under Section 27 of the Act. Otherwise excessively high fines may over-deter, by discouraging potential investors which is not the intention of Act.................."

¶22We find that the Special Director has completely failed to apply the doctrine of proportionality as interpreted and elucidated by the Apex Court in its various decisions, while choosing to impose maximum penalty on Respondents. Having gone through the impugned order, this Court does not find anything perverse in the findings, reasoning and conclusion of the Tribunal. We are in agreement with the finding of the Tribunal that in the absence of any discussion or justification pertaining to the basis for imposing the maximum penalty and juxtaposing this with the alleged acts attributed to each individual, the order of the Special Director is unsustainable. In any case, we find that the matter is of pure appreciation of evidence and does not raise any question of law. As held in 28/28 901-911-FEMA-1-2020+-J.doc Mohtesham Mohd. Ismail (Supra) by the apex Court, in an Appeal under Section 54 of FERA, the High Court should exercise its appellate power only "When there existed a question of law and not a question of fact". Even under Section 35 of the FEMA, an Appeal will lie only in regard to a question of law arising out of such order as appealed against. In the present case, Appellant is unable to point out any such question of law that arises for determination from the impugned order of the Tribunal. What has been pointed out are essentially questions of fact, involving appreciation of evidence.

¶23In this view of the matter, this Court does not find any error in the impugned judgment of the Tribunal. Consequently, these Appeals are without merits and are dismissed as such. There will be no order as to costs.

¶24In view of dismissal of Appeals, Interim Applications pending therein, also stand disposed of. (DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.) RAJU DATTATRAYA GAIKWAD Digitally signed by RAJU DATTATRAYA GAIKWAD Date: 2023.12.13 +0530

1/28 901-911-FEMA-1-2020+-J.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION FEMA APPEAL NO. 1 OF 2020 WITH INTERIM APPLICATION NO. 1706 OF 2020 IN FEMA APPEAL NO. 1 OF 2020 The Special Director, Directorate of Enforcement, (WR) Directorate of Enforcement, Janmabhoomi Chambers, 1st Floor, Walchand Hirachand Marg, Fort, Ballard Estate, Mumbai. At Present Address: Ministry of Finance, Department of Revenue, Government of India through The Assistant Director, 4th Floor, Kaiser I Hind Building, Currimbhoy Lane, Ballard Estate, Fort, Mumbai-400 001. …Appellant Versus Jaipur IPL Cricket Pvt. Ltd., 6th Floor, MET Building, General A. K. Vaidya Marg, Bandra Reclamation, Bandra (W), Mumbai-400 050. …Respondent WITH FEMA APPEAL NO. 2 OF 2020 WITH INTERIM APPLICATION NO. 2065 OF 2020 IN FEMA APPEAL NO. 2 OF 2020 The Special Director, Directorate of Enforcement, (WR) Directorate of Enforcement, Janmabhoomi Chambers, 1st Floor, Walchand Hirachand Marg, Fort, Ballard Estate, Mumbai. At Present Address: Ministry of Finance, Department of Revenue, Government of India through 2/28 901-911-FEMA-1-2020+-J.doc The Assistant Director, 4th Floor, Kaiser I Hind Building, Currimbhoy Lane, Ballard Estate, Fort, Mumbai-400 001. …Appellant Versus Manoj Badale, M/s. ND Investments LLP, 2nd Floor, 26-28, Hammersmith Grove, London W6 7AW, UK. …Respondent WITH FEMA APPEAL NO. 1 OF 2021 WITH INTERIM APPLICATION NO. 2058 OF 2020 IN FEMA APPEAL NO. 1 OF 2021 The Special Director, Directorate of Enforcement, (WR) Directorate of Enforcement, Janmabhoomi Chambers, 1st Floor, Walchand Hirachand Marg, Fort, Ballard Estate, Mumbai. At Present Address: Ministry of Finance, Department of Revenue, Government of India through The Assistant Director, 4th Floor, Kaiser I Hind Building, Currimbhoy Lane, Ballard Estate, Fort, Mumbai-400 001. …Appellant Versus Ranjit Barthakur, Jaipur IPL Cricket Pvt. Ltd., 6th Floor, MET Building, General A. K. Vaidya Marg, Bandra Reclamation, Bandra (W), Mumbai-400 050. …Respondent WITH FEMA APPEAL NO. 2 OF 2021 WITH INTERIM APPLICATION NO. 2054 OF 2020 IN FEMA APPEAL NO. 2 OF 2021 The Special Director, Directorate of Enforcement, (WR) Directorate of Enforcement, Janmabhoomi Chambers, 1st Floor, Walchand Hirachand Marg, 3/28 901-911-FEMA-1-2020+-J.doc Fort, Ballard Estate, Mumbai. At Present Address: Ministry of Finance, Department of Revenue, Government of India through The Assistant Director, 4th Floor, Kaiser I Hind Building, Currimbhoy Lane, Ballard Estate, Fort, Mumbai-400 001. …Appellant Versus M/s. ND Investments LLP, 2nd Floor, 26-28, Hammersmith Grove, London W6 7AW, UK. …Respondent WITH FEMA APPEAL NO. 3 OF 2021 WITH INTERIM APPLICATION NO. 2062 OF 2020 IN FEMA APPEAL NO. 3 OF 2021 The Special Director, Directorate of Enforcement, (WR) Directorate of Enforcement, Janmabhoomi Chambers, 1st Floor, Walchand Hirachand Marg, Fort, Ballard Estate, Mumbai. At Present Address: Ministry of Finance, Department of Revenue, Government of India through The Assistant Director, 4th Floor, Kaiser I Hind Building, Currimbhoy Lane, Ballard Estate, Fort, Mumbai-400 001. …Appellant Versus Bishwarnath Bachun, M/s. EM Sporting Holdings Ltd., 5th Floor, C & R Court, 49, Labourdonnais Street, Port Louis, Mauritius. …Respondent WITH FEMA APPEAL NO. 4 OF 2021 WITH INTERIM APPLICATION NO. 2068 OF 2020 IN FEMA APPEAL NO. 4 OF 2021 The Special Director, Directorate of Enforcement, (WR) Directorate of 4/28 901-911-FEMA-1-2020+-J.doc Enforcement, Janmabhoomi Chambers, 1st Floor, Walchand Hirachand Marg, Fort, Ballard Estate, Mumbai. At Present Address: Ministry of Finance, Department of Revenue, Government of India through The Assistant Director, 4th Floor, Kaiser I Hind Building, Currimbhoy Lane, Ballard Estate, Fort, Mumbai-400 001. …Appellant Versus Suresh Chellaram, Managing Director & Chief Executive, M/s. Chellaram PLC, 26, Cameron Road, Ikoyi, Lagos, Nigeria. …Respondent WITH FEMA APPEAL NO. 5 OF 2021 WITH INTERIM APPLICATION N