Phoenician Medical Center India Pvt. Ltd
- CitationRBI Compounding Order CA No. NDL 516/2019
Ratio decidendi
The rule this decision rests on
The compounding authority holds that a contravention of paragraph 2(2) of Schedule 1 to FEMA 20(R)/2017-RB, consisting of issuing shares to a person resident outside India before receipt of the consideration, is established where the applicant admits it and the record shows the shares were issued on a date earlier than the receipt of the amount. The authority holds that the compounding of such a contravention is to be fixed by reference to the amount involved and the period of default, applying the Guidance Note on Computation Matrix under the Master Direction on Compounding of Contraventions, and that the sum so computed is the appropriate measure in the circumstances, the absence of mala fides being taken into account in the exercise of that discretion. The authority holds that compounding under Section 15(1) of FEMA is conditional on the truth of the applicant's declarations that it is not under enquiry, investigation or adjudication and has not appealed under Sections 17 or 19, and that the order is without prejudice to other action if those declarations prove false.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
In exercise of the powers under Section 15(1) of Foreign Exchange Management Act, 1999 and the Regulations/ Rules/ Notifications/ Orders made thereunder, I pass the following Order. ORDER The applicant has filed the compounding application dated July 31, 2019 (received at Reserve Bank of India, New Delhi on August 2, 2019) for compounding of contraventions of the provisions of the Foreign Exchange Management Act, 1999 (hereinafter referred to as FEMA) and the regulations issued thereunder. The contraventions sought to be compounded are those of issue of shares to person resident outside India prior to receipt of the amount of consideration, in terms of paragraph 2(2) of Schedule 1 to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 notified vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017 (hereinafter referred to as FEMA 20(R)/2017-RB), as amended from time to time.
2. The relevant facts of the case are as follows: (a) The applicant company, incorporated on February 12, 2019, is engaged in other business support service activities n.e.c.
Phoenician Medical Center India Private Limited CA No. NDL 516/2019 (b) The applicant issued 9,990 equity shares on February 12, 2019 to the subscriber to its Memorandum of Association, M/s Phoenician Medical Center Inc., U.S.A. The consideration for the said shares amounting to ₹99,990/- was received in two tranches, after the issue of shares, as detailed below, with delay of 2 months & 10 days and 2 months & 11 days, in contravention of paragraph 2(2) of Schedule 1 to FEMA 20(R)/2017-RB, as then applicable. Sl. No. Date of Amount (₹) Date of Issue Receipt 1 12.02.2019 6,822.00 22.04.2019 2 12.02.2019 93,078.00 23.04.2019 Total 99,900.00
Whereas, in terms of paragraph 2(2) of Schedule 1 to FEMA 20(R)/2017-RB, an Indian company accepting FDI has to receive the share application money from the non-resident investor prior to the issue of shares, and shares have to be issued within sixty days from the date of receipt of the consideration. (c) Thus, there are contraventions of paragraph 2(2) of Schedule 1 to FEMA 20(R)/ 2017-RB, as then applicable.
3. The applicant was given an opportunity for personal hearing for further submission in person and/ or by producing documents, if any, in support of the application. Shri Rajesh Kumar, Assistant Manager, appeared for personal hearing on December 13, 2019 on behalf of the applicant. The representative of the applicant admitted the contraventions committed by the applicant for which compounding has been sought. During the personal hearing, he submitted that the contraventions were without any malafide or wilful intention but were mainly due to delay in opening of company’s bank account and delay in receipt of KYC document from remitter bank. He requested for a lenient view in the matter. The application for compounding is, therefore, being considered on the basis of averments made in the application as well as other documents and submissions made during the personal hearing.
4. I have given my careful consideration to the documents on record and submissions made by the applicant during the personal hearing. Accordingly, I hold that the applicant has contravened the provision of paragraph 2(2) of Schedule 1 to Phoenician Medical Center India Private Limited CA No. NDL 516/2019
FEMA 20(R)/2017-RB, as then applicable, on account of issue of shares to person resident outside India prior to receipt of the amount of consideration as detailed in paragraph 2(b) above. The contraventions relate to an amount of ₹99,900/- (Rupees Ninety Nine Thousand and Nine Hundred only) and the period of contraventions are 2 months & 10 days and 2 months & 11 days.
5. It has been declared in the compounding application dated July 31, 2019 that the particulars given by the applicant in the application are true and correct to the best of their knowledge and belief. It has also been declared in the declaration furnished with the compounding application that the applicant was not under any enquiry/ investigation/ adjudication by any agency as on the date of the application and has, in this regard, not informed of initiation of any such enquiry/ investigation/ adjudication proceedings against it, thereafter. It has further been declared that the applicant has not filed any appeal under Section 17 or Section 19 of FEMA. Accordingly, the above contraventions which are being compounded in this Order are subject to the veracity of the above declarations made by the applicant and this Order is without prejudice to any other action which may be taken by any authority under the extant laws if the said declarations are subsequently discovered to be false and/ or incorrect.
6. In terms of Section 13 of FEMA, any person contravening any provision of the Act shall be liable to a penalty up to thrice the sum involved in such contravention upon adjudication. After considering the submissions made by the applicant and the entire facts and circumstances of the case I am persuaded to compound the contraventions, in line with the Guidance Note on Computation Matrix prescribed as part of Master Direction – Compounding of Contraventions, framed in accordance with the Foreign Exchange (Compounding Proceedings) Rules, 2000. Accordingly, it stands to reason that payment of an amount of ₹2,498/- (Rupees Two Thousand Four Hundred and Ninety Eight only) will meet the ends of justice in the circumstances of this case.
7. Accordingly, I compound the admitted contraventions of paragraph 2(2) of Schedule 1 to FEMA 20(R)/2017-RB, as then applicable, by the applicant based on the facts detailed above in terms of the Foreign Exchange (Compounding Proceedings) Rules, 2000, on payment of an amount of ₹2,498/- (Rupees Two
Phoenician Medical Center India Private Limited CA No. NDL 516/2019
Thousand Four Hundred and Ninety Eight only) which shall be deposited by the applicant with the Reserve Bank of India, Foreign Exchange Department, 6, Sansad Marg, New Delhi - 110001 by a demand draft drawn in favour of the “Reserve Bank of India” and payable at New Delhi within a period of 15 days from the date of this Order. In case of failure to deposit the compounded amount within the above mentioned period, Rule 10 of the Foreign Exchange (Compounding Proceedings) Rules, 2000 dated May 3, 2000 shall apply.
The application is disposed accordingly. Dated this the 18th day of December 2019.
Sd/- (Md. Shakir Hasan) Assistant General Manager
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