Case Note & Summary
The judgment delivered on 13 December 2023 by the Bombay High Court addressed statutory appeals filed by the Special Director, Directorate of Enforcement, under Section 35 of the Foreign Exchange Management Act, 1999. The appeals challenged an order of the Appellate Tribunal for SAFEMA, FEMA, NDPS, PMLA & PBPT Act dated 11 July 2019, which had reduced the penalty imposed by the Special Director from Rs.98.35 Crores to Rs.15 Crores. The Tribunal had ordered that the Rs.15 Crores already deposited pursuant to the Bombay High Court's earlier direction on 21 January 2015 be treated as the penalty for the established contraventions. The underlying investigation concerned the Indian Premier League cricket tournament and alleged irregularities in the bidding and ownership of the Jaipur franchise, known as Rajasthan Royals. Jaipur IPL Cricket Pvt. Ltd. was awarded the franchise; the bidding process required a performance deposit of US$5 million equivalent to Rs.20 Crores. Emerging Media IPL Ltd., UK, submitted a bid of US$67 million for the Jaipur team, to be paid in ten installments over ten years. The performance deposit of Rs.20,19,87,410.23 was transferred from the UK to BCCI-IPL's HDFC Bank account by Manoj Badale on behalf of Emerging Media IPL Ltd. The franchise agreement was signed on 14 April 2008 by Fraiser Castellino, then CEO of JIPL, and Lalit Modi, Vice President of BCCI and Chairman of IPL. After the auction, EM Sporting Holdings Ltd., Mauritius, paid the balance deposit of US$773,480.99. Manoj Badale and EMSH together paid Rs.23,49,27,410. JIPL was a wholly owned subsidiary of EMSH; EMSH was incorporated on 5 May 2008 and JIPL on 8 March 2008. JIPL's initial paid-up capital was Rs.1 Crore with 10,000 shares held equally by Ranjit Barthakur and Fraiser Castellino. Subsequently, Barthakur sold 4,990 shares to EMSH and Castellino sold 5,000 shares to EMSH. JIPL received foreign investments totaling Rs.9,73,18,034 through Axis Bank, shown as FDI in equity. JIPL applied to RBI for approval to issue shares to EMSH. The Directorate of Enforcement alleged that these transactions contravened FEMA and regulations. The Special Director imposed a penalty of Rs.98.35 Crores, which the Tribunal reduced to Rs.15 Crores. The High Court was called upon to decide whether the Tribunal's reduction was legally sustainable. The court reserved judgment on 6 December 2023 and pronounced it on 13 December 2023.
Headnote
A) Foreign Exchange Management - Penalty Reduction - Section 35 of Foreign Exchange Management Act, 1999 - The Appellate Tribunal modified the Special Director of Enforcement's order by reducing total penalty from Rs.98.35 Crores to Rs.15 Crores, holding that the amount already deposited by the respondents pursuant to High Court's order dated 21st January 2015 was reasonable and should be treated as penalty for contraventions - The appeals before High Court challenged this reduction, and the court was to consider if the Tribunal's reduction was justified in light of FEMA provisions and regulations (Paras 1-2). B) Foreign Direct Investment - Approval and Compliance - FEMA regulations regarding issue of shares to person resident outside India - The facts revealed that Jaipur IPL Cricket Pvt. Ltd. received foreign investments through Axis Bank, filed application with RBI for issuing shares to EM Sporting Holdings Ltd., Mauritius; performance deposit was transferred from UK and Mauritius to BCCI-IPL account; such transactions were under scrutiny for contravention of FEMA provisions (Paras 4-5).
Issue of Consideration
Whether the Appellate Tribunal was justified in reducing the penalty imposed by the Special Director of Enforcement from Rs.98.35 Crores to Rs.15 Crores for contraventions of FEMA and regulations thereunder.
Law Points
- FEMA Section 35 appeal
- penalty reduction
- contravention of FEMA provisions
- foreign direct investment regulatory compliance
- performance deposit requirements
- RBI approval for share issue
