APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT

AT NEW DELHI

Date of Decision: 06.06.2018

FPA-FE-31/HYD/2017

Anil Kumar Dundoo … Appellant

Versus

The Special Director

Directorate of Enforcement, Hyderabad … Respondent
| Printed using casemine.com by licensee : National Law University Jodhpur

Advocates/Authorized Representatives who appeared

For the appellant : Shri Y. Sreenivasa Reddy, Advocate

For the respondent : Ms. Aagam Kaur, Legal Consultant

JUDGEMENT
JUSTICE MANMOHAN SINGH : CHAIRMAN

FPA-FE-31/HYD/2017

1. The appellant had filed the appeal against the order dated

07.03.2017 whereby Joint Director has passed the order imposition of

penalty on him while come to the conclusion that he had violated the

following provisions of Foreign Exchange Management Act, 1999 along

with the regulations made there under during the period 2005-2009;

(a) Section 7 of FEMA, 1999 read with Regulation 16 of FEM

(Export of Goods & Services) Regulations 2007 for non-declaration

of particulars of export to the RBI.

(b) Section 6 of FEMA read with Regulation 3 & 6 of FEM

(Borrowing and Lending in Foreign Exchange) Regulations 2000,

for borrowing of Foreign exchange from foreign share holder as

investment into the company.

FPA-FE-31/HYD/2017 Page 1 of 10
 2. The brief facts are that a complaint dated 12-02-2015 was filed by

the Assistant Director of Enforcement, Hyderabad, under Sec. 16(3) of

the Foreign Exchange Management Act, 1999. The facts mentioned in the

said Complaint are:

a) Based on reliable information that one Shri Anil Kumar Dundoo

received foreign inward remittances in the name of firms owned by him

through bank accounts maintained with Andhra Bank, MG Road, Br.,

Secunderabad, in contravention of the provisions of the Foreign

| Printed using casemine.com by licensee : National Law University Jodhpur

Exchange Management Act, 1999 (hereinafter referred to as ‘FEMA’), the

details of the remittances were obtained from Andhra Bank M.G. Road

Branch Secunderabad. As per the bank documents, he is the proprietor

of M/s Mustang Services and also a Director in M/s Mustang Infra

Projects (P) Ltd. Smt. Dundoo Ratna Sujini w/o Shri Dundoo Anil

Kumar, is the proprietrex of M/s Matrix Jewels and also a Director in

M/s Mustang Infra Projects (P) Ltd. The details of foreign inward

remittances are mentioned in the impugned order at page no. 3.

b) He was Summoned and his statement was recorded under Section

37 of the FEMA, before the Assistant Director, Enforcement Directorate,

Hyderabad on 19-08-2011. In his said statement, he deposed inter-alia,

that he is a businessman dealing in jewellery, having business in the

name and style of M/s Mustang Services, M/s Matrix Jewels, and M/s

Mustang Infra Projects (P) Ltd; that he is the sole Proprietor of Mustang

Services Ltd., his wife Smt. Ratna Sujini is the Proprietor of M/s Matrix

Jewels and that they both are the Directors of Mustang Infra Projects (P)

Ltd.; that even though his wife is the Proprietor of M/s Matrix Jewels, he

is in charge of the day to day activities/functioning and responsible for

the affairs of all the three entities; that M/s Mustang Services, which was

stated in the year 1993-94 is dealing in jewellery and diamonds; that

FPA-FE-31/HYD/2017 Page 2 of 10
 M/s Mustang Infra Projects (P) Ltd. was started in the year 2007-08 to do

real estate business and that except purchase of 10 acres of land in the

year 2007 at Bahadurguda, Shamshabad Mandal, Ranga Reddy District,

no other transactions was done by this company; that M/s Matrix Jewels

started in the year 2006 deals in jewellery including export and import;

that he would submit the details of exports and imports done by M/s

Mustang Services and M/s Matrix Jewels in due course.

c). As regards his relationship with companies like M/s International

| Printed using casemine.com by licensee : National Law University Jodhpur

Business Software, M/s Dataformix Technologies, M/s Sandy Spring

Naturals and M/s Vemuri Systems, Shri Dundoo Anil Kumar, stated that

M/s Dataformix Technologies belongs to his friend Srikanth Aitharaju, a

native of Secunderabad, now resident of USA for the last 15 years; that

he does not remember about other entities and needs to verify his

records; that he received foreign remittances from Mr. Srikanth Aitharaju

of M/s Dataformix Technologies in connection with sale of jewellery from

M/s Mustang Services & M/s Matrix Jewels to Srikanth Aitharaju and

his family members in Hyderabad and that he did not export them to US

and undertook to produce the details of jewellery sold to the Srikanth. He

also stated that it is a fact that foreign inward remittances were received

into the accounts of M/s Mustang Services, M/s Matrix Jewels and M/s

Mustang Infra (P) Ltd. but does not remember on how many occasions

they were received; that that the amounts received by way of foreign

remittances into M/s Mutang Infra Projects (P) Ltd., were loan amounts

given by Srikanth Aitharaju crime.

d) When confronted with the inward remittances into the Andhra

Bank A/c of M/s Mustang Services, M/s Matrix Jewels and M/s

Mustang Infra (P) Ltd., Shri Dundoo Anil Kumar, stated that amounts

totaling to USD 2,66,367/- during 2007-08 were received by M/s

FPA-FE-31/HYD/2017 Page 3 of 10
 Mustang Infra Projects (P) Ltd. from Srikant Aitharaju, USA, M/s

International Business Software Solutions, USA & M/s Dataformix

Technologies, USA; that M/s Mustang Services received amounts of USD

29,352/-, USD 67,409/- & USD 94,638/- during 2006 and 2007 from

M/s Datafromix Technologies, USA & a further amount of USD 78,352/-

was received by M/s Mustang Services in 2008 from M/s Vemuri

Systems, USA and that M/s Matrix Jewels received an amount of USD

89,564/- in 2007 from M/s Dataformix Technologies, USA; that the

amounts received by M/s Mustang Services and M/s Matrix Jewels were
| Printed using casemine.com by licensee : National Law University Jodhpur

towards sale of jewellery to A. Srikanth and his family members; that no

jewellery was sent to USA but were handed over to his family members at

Hyderabad; that the foreign inward remittances totaling to USD

2,66,367/- were received as loan from Shri A. Srikanth, USA received by

M/s Mustang Infra Projects (P) Ltd. and till date they have not

paid/returned the money to him and under took to submit copy of loan

agreement that he has not sold any jewellery to M/s Vemuri Systems,

USA and M/s International Business Software and that he is not aware

of the relationship between Srikanth Aitharaju, USA with these

companies.

3. He gave his response by the letter dated 15th May, 2013, 18th May,

2013 & 26th June, 2013. In the impugned order each and every plea

taken by the appellant has been discussed. By the impugned order

following penalty were imposed by the appellant:-

a) Shri D. Anil Kumar, Prop. Rs. 3,00,000/- (Rupees Three Lakhs

M/s Mustang Services only) for contravention of the

provisions of Sec. 7 of the FEMA,

1999, read with Regulation of 16 of

the Foreign Exchange Management

(Export of Goods & Services)

FPA-FE-31/HYD/2017 Page 4 of 10
 Regulations, 2000, to the extent of

USD 5,71,201/- (equivalent Rs.

2,47,62,201/-).

b) Smt. Ratna Sujini, Rs. 50,000/- (Rs. Fifty Thousand only)

Proprietrix, M/s Matrix for contravention of the provisions of

Jewels Sec. 7 of the FEMA, 1999, read with

Regulation 16 of the Foreign Exchange

Management (Export of Goods &

| Printed using casemine.com by licensee : National Law University Jodhpur

Services) Regulations 2000, to the

extent of USD 89,564/- (equivalent to

Rs. 35,54,514/-)

c) M/s Mustang Infra Projects Rs. 2,00,000/-(Rupees Two Lakhs

(P) Ltd. only) for contravention of the

provisions of Sec. 6(3) (d) of the FEMA,

1999, read with paras 2, 3 (ix) & (x) to

Regulation 6(2) of the Foreign

Exchange Management (Borrowing &

Lending in Foreign Exchange)

Regulations, 2000, to the extent of

USD 2,66,367/- (equivalent to Rs.

1,05,14,460/-)

d) Shri D. Anil Kumar, Rs. 1,50,000/- (Rupees One Lakh

Director M/s Mustang Infra Fifty Thousand only) for contravention

Projects (P) Ltd. of the provisions of Sec. 6(3)(d) of the

FEMA, 1999, read with Paras 2, 3 (ix)

& (x) to Regulation 6(2) of the Foreign

Exchange Management (Borrowing &

Lending in Foreign Exchange)

FPA-FE-31/HYD/2017 Page 5 of 10
 Regulations, 2000 read with Sec. 42 of

the FEMA, 1999, to the extent of the

USD 2,66,367/- (equivalent to Rs.

1,05,14,460/-)

4. The penalties of Rs. 3,00,000/- (Rs. Three Lakhs only), Rs.

50,000/- (Rs. Fifty Thousand Only), Rs. 2,00,000/- (Rs. Two Lakhs Only)

& Rs. 1,50,000/- (Rs. One Lakh Fifty Thousand Only) imposed

respectively on Shri D. Anil Kumar, Proprietor M/s Mustang Services,

| Printed using casemine.com by licensee : National Law University Jodhpur

Smt. D. Ratna Sujini, Proprietrix M/s Matrix Jewels, M/s Mustang Infra

Projects (P) Ltd. and also its Director Shri D. Anil Kumar should be

depsotied in this Office by means of a demand draft in favour of “The

Drawing & Disbursing Officer, Directorate of Enforcement, Hyderabad,

within 45 days from the date of receipt of this Order.

5. The findings of the Joint Director, Enforcement in para 9, 10 & 11

on the basis of which the penalty were imposed are reproduced here

below:-

9.1 I have gone through the records of the case and

considered carefully the submissions on record. The case
against the notices emanates from the documents obtained
by the Directorate from Andhra Bank, MG Road Br.,
Secunderabad and also Indusind Bank, Banjara Hills Br.,
Hyderabad. As per the documents obtained, M/s Mustang
Services, M/s Matrix Jewels and M/s Mustang Infra
Projects (P) Ltd. has received the following foreign inward
remittances.

Sl.No. Name of the Entity Amount Received

In USD Equivalent in

Rupees

1 M/s Mustang Services 5,71,201/- 2,47,62,201/-

2 M/s Matrix Jewels 89,564/- 35,54,514/-

FPA-FE-31/HYD/2017 Page 6 of 10
 3 M/s Mustang Infra 2,66,367/- 1,05,14,460/-

Projects (P) Ltd.

As per the swift messages received form Andhra Bank as

well as Indusind Bank, the above remittances were
received as advances for export. In his statements given
before the Directorate, Shri Anil Kumar, who is the
Proprietor of M/s Mustang Services and Director of M/s
Mustang Infra Projects (P) Ltd. had stated that M/s
Mustang Services and M/s Matrix Jewels had received the
amounts towards the sale of jewellery to A. Srikanth of
Dataformix Technologies Inc., USA; that no jewels were
exported; that the jewels were ordered by A. Srikanth and
| Printed using casemine.com by licensee : National Law University Jodhpur

his family members when they visited India and that the
payment for the jewels were received byway of foreign
inward remittances. Shri D. Anil Kumar furnished copies of
invoices for the said sale of jewellery to A. Srikanth. When
confronted with the discrepancies in the VAT returns filed
with the Commercial Tax Department by both the entities
towards the local sales, Shri D. Anil Kumar merely stated
that the same was the mistake of the tax Consultant. In
respect of M/s Mustang Infra Projects (P) Ltd., Shri D. Anil
Kumar in his statement admitted that he is the Director of
the company and the person responsible for its day to day
affairs; that M/s Mustang Infra Projects (P) Ltd. had
borrowed USD 2,66,367/- from A. Srikanth of M/s
Dataformix Technologies Inc., USA. During the
investigation stage, Smt. D. Ratna Sujini, Proprietrix of M/s
Matrix Jewels had vide letter dt.16-7-2013 stated that the
statement given by her husband Shri.D.Anil Kumar in
respect of M/s Matrix Jewels, is binding on her.

9.2 In response to the Show Cause Notice, M/s Mustang

Services & M/s Matrix ( Jewels had filed similar replies
and their primary objections were that the amounts were
not received for export of jewellery but towards local sale
of jewellery; that the invoices and VAT returns filed are not
fake; that the charges against them are vague; that the
charges made are time barred and that the show cause
notice lacks territorial jurisdiction.

9.3 In its reply M/s Mustang Infra Projects (P) Ltd. had
sought to assail the Show Cause Notice on the ground that
its borrowing is covered under Schedule I to the Foreign
Exchange Management (Borrowing & Lending in Foreign
Exchange) Regulations, 2000 and as such there is no
requirement of any permission from RBI for taking loan
and that the case is barred by limitation in terms of Sec.
149 of the Income Tax Act and that the show cause notice
is issued without territorial jurisdiction.

10.1. In respect of the above contentions raised by

M/s Mustang Services with regard to the non-applicability
of the provisions mentioned in the Show Cause Notice, it is
FPA-FE-31/HYD/2017 Page 7 of 10
 observed that in the swift messages that were obtained
from Andhra Bank and Induslnd Bank, it is clear from the
same that the remittances were received as advances for
the exports. The contention of both M/s Mustang Services
as well as M/s Matrix Jewels that the same were received
towards local sale of jewellery to A. Srikanth, fails
miserably when the invoices submitted by these entities
were verified with the monthly returns filed by them with
the Commercial Tax Department. The contention of the
Noticees that Regulation 16 of the Foreign Exchange
Management (Export of Goods & Services) Regulations,
2000, is attracted only if they export the goods after one
year from the date of receipt of advances is erroneous and
interpretation appears to have been made to suit their
convenience. The true impact of this regulation is that the
goods should be exported within one year within one year
from the date of receipt of advance and if the goods are not
| Printed using casemine.com by licensee : National Law University Jodhpur

exported within one year form the date of receipt of such

advance, then it would be a contravention of the
regulation. The interpretation of the Noticees is bent and
twisted in a manner that is not intended by the Regulator.
The very fact that there is a mismatch in the monthly sales
turn over furnished to the Commercial Tax Department and
the sale invoices furnished to the Directorate establishes
that they had erred in their commitment of exports and
have designed an elaborate plan by furnishing fabricated
sales invoices so as to escape from the penal liabilities
under the provisions of the FEMA. The blame on the tax
Consultant in filing wrong returns before the Commercial
Tax Department, is an afterthought to wriggle out of the
clutches of the present case. I therefore reject the
contention of both M/s Mustang Services & M/s Matrix
Jewels in this regard.

10.2 As for the contention of M/s Mustang Services & M/s

Matrix Jewels that the charge against them is vague and
not specific, I find that specific charge of contravention of
the provisions of Sec. 7 of FEMA read with Regulation 16
of the Foreign Exchange Management (Export of Goods &
Services) Regulations, 2000, for non-export of jewellery
within one year from the date of receipt of advance is
made against them on the basis of the complaint filed by
the Assistant Director, Enforcement. The extent to which
they had contravened the above provisions of the FEMA
and also the period during which they had received the
said advances has been clearly and categorically stated in
the Show Cause Notice. As per the records of the case, the
foreign inward remittances were received in 7 trances
commencing from December, 2005 to May, 2008 and as
per the extant rules, should have been completed within
one year i.e. the export in respect of foreign inward
remittance received in December, 2005 should have been
completed by December, 2006 and so in the case for other
inward remittances. However, no export of goods had
taken within the specified period. Hence I Find that the
contention of both the Noticees that the charges made
against them in the Show Cause Notice are vague is
misleading and contrary to the records of the case. Their
contention on this ground is therefore dismissed as

FPA-FE-31/HYD/2017 Page 8 of 10
 incorrect.

10.3. As regards the contention of M/s Mustang Infra

Project (P) Ltd. that its borrowing of USD 2,66,367/-
(equivalent to Rs. 1,05,14,460/-) from A. Srikanth of M/s
Dataformix Technologies Inc., USA, is covered under
Schedule I to the Foreign Exchange Management
(Borrowing & Lending in Foreign Exchange) Regulations,
2000 and that loan for real estate other than purchase of
agricultural land is permissible and that they were not
aware of filing returns. On close reading of the relevant
provisions it is observed that borrowings in foreign
exchange is broadly allowed under two categories viz.
under automatic route in terms of Regulation 6(1) read
with Schedule I and under approval route in terms of
Regulation 6(1) read with Schedule II. The Schedules that
are applicable are based on the purpose of the loan.
| Printed using casemine.com by licensee : National Law University Jodhpur

Contrary to the contention of M/s Mustang Infra Projects

(P) Ltd. there is no specific provision in Schedule I to the
Foreign Exchange Management (Borrowing & Lending in
Foreign Exchange) Regulations, 2000 which permits loan
for real estate. In the absence of any clause in Schedule I,
permitting borrowal for real estate, it cannot be said that
the borrowing comes under automatic route. Hence the
contention of M/s Mustang Infra Projects (P) Ltd. that its
borrowing is covered under Schedule I is grossly incorrect
and contrary to the facts of the case. Once, the borrower
is not eligible under automatic route, the only other route
applicable is approval route. The Noticee M/s Mustang
Infra Projects (P) Ltd. has admittedly not obtained any
prior approval from the Reserve Bank of India. The
Promissory Note furnished by Shri D. Anil Kumar during
the course of investigations cannot be treated as a Loan
Agreement as envisaged under Para 3 (ix) to Schedule II to
the said Regulations. The Promissory Note is an
instrument in writing containing an unconditional
undertaking signed by the market to pay a certain sum of
money only to or to the order of a certain person or to the
bearer of the instrument. The Promissory Note can hardly
replace the Loan Agreement specified under the
Regulations in question. Furthermore the Noticee has not
furnished any evidence that they have obtained Loan
Registration Number from the Reserve Bank of India. It is
further seen that they had also drawn the foreign
exchange loan of USD 2,66,367/- without obtaining the
Loan Registration Number from the RBI. In light of the
above, the contention of M/s Mustang Infra Projects (P) Ltd.
on this court are rejected as inapplicable.

10.4 Besides the above objections, M/s Mustang services,

M/s Mustang Jewels and M/s Mustang Infra Projects (P)
Ltd. have raised common objections regarding the time
barring and also territorial jurisdiction in issuance of the
Show Cause Notice.
As regards the time bar, I observe that there is no specific
provision under FEMA,1 999, which states issue of Show
Cause Notice within specified time frame. In the absence of
any such provision in the Act, I dismiss the contention of
all the notices as inapplicable. As regards the territorial
jurisdiction, I find that Sec.l6(2)of the Act required that
FPA-FE-31/HYD/2017 Page 9 of 10
 Central Government jurisdiction to be specified. The
Central Government vide Notification No. 1246(E ), dt.
30.05.2012 while superceding the earlier Notification had
appointed certain officers of Directorate of Enforcement as
Adjudicating Authorities under FEMA. I further find that
the said Notification had clearly mentioned the monetary
jurisdiction of each adjudicating authority. Hence, the
contention of the Noticees that jurisdiction has not been
specified in the Notification No. 1246 ( E), dt. 30.05.2012 is
incorrect. I therefore dismissed this contention of the
Noticee as untenable.

11. In total I uphold the charges levelled in the Show

Cause Notice against all the Noticees viz. Shri D. Anil
Kumar, Proprietor M/s Mustang Services, Smt. D. Ratna
Sujini, Proprietrix, M/s Matrix Jewels, M/s Mustang Infra
Projects (P) Ltd. as established beyond doubt. I also hold
| Printed using casemine.com by licensee : National Law University Jodhpur

Shri D. Anil Kumar, Director of M/s Mustang Infra Projects

(P) Ltd., guilty of the charges under Sec. 42 of the FEMA,
1999.

6. I have gone through the grounds taken by the appellant in the

appeal as well as impugned order and material placed on record. I find

no forces in the submissions of the learned counsel for the appellant. The

impugned order does not suffer from infirmity. It is a well-reasoned order

where the plausible view was taken by the Joint Director, Enforcement.

The appeal is accordingly dismissed.

7. No order as to costs.

(Justice Manmohan Singh)

Chairman

New Delhi,
6th June, 2018
‘d’

FPA-FE-31/HYD/2017 Page 10 of 10