2023 TaxPub(CL) 1843 (SAFEMA - New Delhi)

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

Section 19

Appellant, who was a citizen of Pakistan, purchased property in India without taking permission from RBI, Government of India granted citizenship to him and he also paid penalty of Rs. 3 lakh, there was no mens rea on part of appellant, therefore, order of imposition of further penalty of Rs. 50 thousand was set aside.

Appeal to Appellate Tribunal - Purchase of property without obtaining permission from RBI - Imposition of penalty of Rs. 3 lakh paid by appellant - Sustainability of further penalty of Rs. 50 thousand

Appellant, who was a citizen of Islamic Republic of Pakistan, purchased immovable property in India without taking any permission from RBI or any other Government body. Therefore, Adjudicating Authority imposed penalty of Rs. 3 lakh upon him. Enforcement Directorate filed an appeal for enhancement of the penalty on the ground that the amount of penalty did not correspond with quantum of the contravention, wherein Special Court remanded the matter to the Adjudicating Authority to pass order afresh. The Adjudicating Authority, while holding that there was no case for confiscation of property under section 13, imposed a further penalty of Rs 50 thousand on the appellant. Therefore, the appellant filed an appeal for quashing of the penalty of Rs.50 thousand. Held: It was found that the appellant and his family arrived in India after grant of long term visa to them by Government of India. They were subsequently granted full citizenship as a naturalized citizen. There was no absolute bar on a Pakistani citizen acquiring property in India and only requirement was to obtain permission. Further, the penalty of Rs. 3 lakh was also paid by the appellant. There was no mens rea on the part of the appellant to contravene any provisions of the Act. Thus, the order of levy of further penalty of Rs. 50 thousand was set aside.

REFERRED :

FAVOUR : In favour of appellant

A.Y. :

IN THE APPELLATE TRIBUNAL SAFEMA, NEW DELHI

MUNISHWAR NATH BHANDARI, CHAIRMAN & V. ANANDARAJAN, MEMBER

Arjun Das Malhotra v. Special Director, Directorate of Enforcement

MP-FE-143/DLI/2022 (Misc.), FPA-FE-86/DL1/2022

5 September, 2023

Appellant by: Prashant Pandey, Manish Mishra and Nitin Verma, Advocates

Respondent by: Shomendu Mukherji, Akansha Gupta and Megha Sharma, Advocates

FPA-FE-86/DLI/2022

1. The present appeal arises from the Order, dated 22-9-2022 passed by the learned Special Director (Appeals), FEMA, upholding the order of the Adjudicating Authority imposing a penalty of Rs. 50,000 on the appellant for contravention of regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property In India) Regulations, 2000.

2. The relevant facts of the case are that the appellant was a citizen of the Islamic Republic of Pakistan, and held a passport of that country. He purchased an immovable property in Dehradun, Uttarakhand, India, i.e., a shop admeasuring 203 sq.ft. in Peepal Mandi, Dehradun for a consideration of Rs. 1 lakh in 2000. Before acquiring the aforesaid immovable properties, the appellant did not take any permission from the Reserve Bank of India (RBI) or any other government body as required under regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.

3. In view of the above, a complaint dated 11-6-2015 was filed by the Assistant Director, Directorate of Enforcement, Dehradun under section 16(3) of FEMA, 1999 against appellant, praying for issuance of Show Cause Notice to him for the above-mentioned contravention.

4. Accordingly a Show Cause Notice, dated 13-7-2015 was issued to the appellant for contravention of Regulation 7. The appellant filed a reply to the Show Cause Notice. After considering the reply dated 25-8-2015 to the Show Cause Notice, the authority decided to hold adjudication proceedings. In conclusion of the proceedings, and after considering the submissions of the appellant, the Adjudicating Authority imposed a penalty of Rs. 3,00,000 on the appellant vide its Order, dated 15-10-2015. The appellant deposited the said penalty amount of Rs. 3,00,000.

5. The matter, however, did not end there. Aggrieved by the order of the Adjudicating Authority, the Deputy Director, Enforcement Directorate preferred an appeal to the Special Director (Appeals) under section 17(2) of FEMA, 1999 on the ground that the amount of penalty imposed vide the above-mentioned order does not correspond with the quantum of the contravention and as such the penalty should be enhanced and the properties should be confiscated.

6. The learned Special Director (Appeals), after considering the facts and circumstances of the case, passed an order remanding back the matter to the Adjudicating Authority to pass a fresh order after examination of the documents submitted by the respondents.

7. Accordingly, de novo adjudication proceedings were held. The learned Adjudicating Authority, while holding that there was no case for confiscation of the property under section 13(2) of FEMA, 1999, imposed a further penalty of Rs. 50,000 on the appellant, Shri Rajkumar Malhotra.

8. Aggrieved by the said order, the appellant filed an appeal under section 17 of FEMA before the learned Special Director (Appeals) challenging the order of the Adjudicating Authority. The learned Special Director (Appeals), through a detailed speaking order passed on 22-9-2022, upheld the order of the Adjudicating Authority and dismissed the appellant's appeal. It is this order of the learned Special Director (Appeals) which has been impugned before us in the present appeal.

9. The learned counsel for the appellant submits that the appellant and his family, being Pakistani nationals, took refuge in India in 1992 as they were being persecuted and tortured in Pakistan for being Hindus. The appellant came with his family 26 years ago to settle permanently on political asylum. They applied for naturalization under the immigration laws and were granted a naturalization certificate by the Ministry of Home Affairs, Government of India on 15-2-2017. He is presently residing in Dehradun, India with his wife and children. He submits that the appellant is a law-abiding individual and has never been involved in any criminal or anti-social activity. He came to India under very difficult circumstances, with the intention of permanently settling here. He has been leading a precarious existence doing petty business with the help of his relatives here who had also similarly immigrated from Pakistan. He acquired the property in question, but as the legal intricacies were not known to him, he could not comply with the statutory requirement. He submits that he has already paid the original penalty of Rs. 3,00,000 which was imposed upon him and his son by the Adjudicating Authority. However, the Deputy Director of Enforcement preferred an appeal against the adjudication order, which resulted in the imposition of further penalty. The main contentions of the appellant against imposition of further penalty on him are as follows :--

-- That the appellant was granted citizenship of India on 15-2-2017 and a certificate of naturalization was issued by the Ministry of Home Affairs under the Citizenship Act, 1955 on that date. In view of this, he submits, the adjudicating authority ought to have considered that the transaction pertaining to the purchase of the immovable property has been 'automatically regularised' and the appellant cannot be treated as a Pakistani national for the purpose of FEMA regulations

-- That there was no involvement of any foreign exchange in the instant case as the properties were purchased in India with the help of relatives who lived in India and through money earned in India. FEMA, 1999 was enacted to deal with violations pertaining to foreign exchange laws. There is no such violation in the instant case.

-- The appellant is a hardworking and law-abiding person without being involved in any anti-social activity. He had sought political asylum in India on account of facing persecution in Pakistan. He will have to face severe consequences and irreparable loss will be suffered if the improved order is not set aside.

-- That there was no mens rea on the part of the appellant to contravene any provisions of the Act. That purchase of property why a Pakistan national is not prohibited and the only requirement is to obtain the approval of RBI.

-- The Hon'ble Supreme Court in Hindustan Steel Limited v. State of Orissa 1969 (2) SCC 627 has held that Penalty will ordinary not be imposed for a technical or venial breach which flows from bona fide belief, unless the party acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard to his obligation. Penalty will also not be imposed only because it is legal to do so. Whether a penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. The authority concerned would be justified in refusing to impose the penalty. Certain other case laws have also been cited by the Appellant in favour of his case.

10. The learned counsel for the respondent has strongly contested the contentions put forward on behalf of the appellant. it is submitted that at the relevant time the appellant was not a citizen of India but citizen of Pakistan and ignorance of law cannot be a defence. It is also contended that the order of the Adjudicating Authority which has been upheld by the learned Special Director (Appeals) was reasonable and fair in so far as the learned appellate authority did not find any merit in the proposal for confiscation under section 13(2) of FEMA, 1999,but merely imposed a further penalty upon the Appellant.

11. We have given careful consideration to the facts before us and the rival contentions of the parties. Considering the totality of facts before us, including the background in which the appellant arrived in India with his family, grant of long-term visa to him by the Government of India followed eventually by grant of full citizenship as a naturalized citizen. The fact that there was no absolute bar on a Pakistani citizen acquiring property in India and the only requirement was to obtain permission. The fact that the amount of original penalty of Rs. 3,00,000 imposed upon him and his son was duly paid, and the intended purpose of the legislation in question (FEMA, 1999) which was to consolidate and amended the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India, we are of the view that the appellant has made out a case for grant of relief. No doubt ignorance of the law is not a defence and every person is presumed to know the law to which he or she is subject. Nevertheless, in view of the facts mentioned above which are not in dispute, we are of the view that the ends of justice have been met with the penalty of Rs. 3,00,000 imposed upon the appellant and his son in the first instance which was duly paid, and levy of further penalty of Rs. 50,000 was not justified in his case. Accordingly, the same is hereby set aside.

12. Consequent to the above, the instant appeal stands allowed and the further penalty of Rs. 50,000 imposed by the adjudicating authority, and upheld by the learned Special Director of Enforcement (Appeals) through the impugned order, are set aside.