SAFEMA Appellate Tribunal Upholds ₹83 Lakh FEMA Penalty On Tata Capital Forex In ₹8.36 Crore Forex Card Case

The Appellate Tribunal under SAFEMA has upheld an Rs. 83 lakh penalty imposed on Tata Capital Forex Ltd. for violating foreign exchange laws in a case involving forex prepaid cards worth over Rs. 8.36 crore.

It, however, granted partial relief to the company's former regional manager, Ashwin Savoor, by reducing his penalty from Rs. 83 lakh to Rs. 16.6 lakh.

A coram of Members Balesh Kumar and Rajesh Malhotra observed: “Even though being an Authorised Person, they not only failed to be prudent and cautious in adhering to the instructions of the RBI, but also allowed unverified persons and entities to enter into transactions with it, which was not permissible. Such transactions happened repeatedly, which therefore cannot be regarded as mere mistake, but as a serious lapse on the part of the Appellant Company.”

The tribunal was hearing appeals against a March 23, 2020 order passed by the Joint Director, Directorate of Enforcement, Chennai. The order had imposed separate penalties of Rs. 83 lakh each on Tata Capital Forex Ltd. (TCFL) and Savoor for allegedly issuing forex prepaid cards in violation of KYC and due diligence norms.

The case related to the issuance of forex travel prepaid cards in the names of 141 passengers for a total amount of Rs. 8.36 crore. ED alleged that the cards were issued against bulk payments received from unrelated third parties instead of the actual passengers. It also found identical email IDs and contact numbers across multiple applications.

TCFL argued that the proceedings violated principles of natural justice. It claimed that it was denied an opportunity to file a final reply and cross-examine noticees and officials.

The company also argued that, since it was an “Authorized Person” licensed by the RBI to deal in foreign exchange, the alleged contraventions could only be dealt with by the RBI under FEMA. TCFL further argued that the unexplained five-year delay vitiated the proceedings.

ED argued that sufficient opportunities had been given to the Appellants. It submitted that there was no unexplained delay because the investigation continued for several years, during which summons were issued and statements recorded.

Rejecting the delay argument, the tribunal noted that ED had conducted extensive investigation, including examination of records and statements.

On cross-examination, the Bench held that denial of such opportunity did not violate principles of natural justice because the relied-upon documents had already been supplied to the Appellants and no prejudice had been caused.

The tribunal also rejected the jurisdictional objection. It held that entities authorised by the RBI to deal in foreign exchange are still liable for penalty proceedings under FEMA if they violate the law.

The bench observed, “Therefore, it follows that the Appellant Company is as much liable for penalty under Section 13 of FEMA as any other 'person' on being found that it has indulged in contraventions of Section 3 (a).”

The tribunal held that a Full-Fledged Money Changer could not escape FEMA proceedings merely because it operated under an RBI licence.

The bench further observed: “On perusal of these findings, the conclusion that the Appellant Company allowed foreign exchange worth Rs. 8,36,25,797/- to be siphoned off by selling pre-paid foreign currency card without complying with the same rigorous standards of due diligence and KYC as they would have if they were selling foreign currency to their customers, is inescapable.”

Holding that TCFL had committed repeated and serious lapses in complying with FEMA obligations and RBI directions, the Tribunal upheld the Rs. 83 lakh penalty imposed on the company.

The tribunal noted Savoor's admission in his voluntary statement that mandatory KYC norms had not been followed and that third-party bulk payments had been accepted. It also noted that TCFL had merged into Thomas Cook (India) Ltd. in 2019 and that Savoor had responsibility for the Southern region during part of the relevant period.

The bench upheld findings that Savoor was responsible for failures to follow due diligence and foreign exchange compliance requirements. It held that he could not avoid liability by blaming subordinate staff. However, it disagreed with the adjudicating authority's finding that he personally stood in the position of the passenger-declarants who were supposed to use or surrender the foreign exchange.

The tribunal accordingly reduced Savoor's penalty from Rs. 83 lakh to Rs. 16.6 lakh.

It dismissed TCFL's appeal and partly allowed Savoor's appeal.

For Appellants: Advocates M. R. Venkatesh, Rakesh Karala

For Respondent: Advocates Vivek Gurnani, Kanishk Maurya,