Relief from disproportionate fine for entities linked to Rajasthan Royals

PALAK SHAH Mumbai | Updated on September 05, 2019 Published on September 05, 2019

PMLA tribunal called imposition of three times penalty as ‘untenable’ and ‘unsustainable’

Entities linked to IPL team Rajasthan Royals (RR) have won major relief from the Prevention of Money Laundering (PMLA) appellate tribunal that hears anti-money laundering cases. The tribunal has called imposition of a huge three times penalty against the entities linked to Rajasthan Royals of ₹98 crore as 'untenable' and 'unsustainable' and reduced it to ₹15 crore while in the case of individual appellants, it has been struck down to nil. The tribunal termed FEMA (foreign exchange management act) violations in the present case as 'technical' and 'venial' at best.

PMLA appellate tribunal held the doctrine of proportionality as one of the key factors in cutting down the penalty. Principle of proportional justice in criminal law is referred to the idea where “punishment of a certain crime should be in proportion to the severity of the crime itself. The doctrine, the conduct of good faith, honesty and mens rea cannot be excluded from consideration while deciding the quantum of imposing penalties,” the tribunal concluded in the matter.

The tribunal though upheld FEMA violation of ₹33 crore payment made to BCCI by various individuals/entities connected to Rajasthan Royals for bidding of IPL franchise but struck down penalty imposed on several individual directors of the concerned entities and substantially reduces the penalties on others, invoking doctrine of proportionality.

Contentions by Enforcement Directorate (ED) were accepted by the Tribunal. ED’s case was that in each of the 3 tranches of payments made to BCCI, the remitter of funds was different from the investor, a Mauritius based entity, to whom shares were sought to be issued. Arrangement had been made to route the investment through Mauritius but the funds are flowing into India from United Kingdom which is not permissible. RBI & FIPB twice rejected the application of appellants for issuance of shares and especially there was FIPB's categorical finding that the company could not provide satisfactory proof of receipt of foreign exchange.

But the tribunal held that ED has failed to discharge the burden of proving that they were involved in day-to-day management of the Indian or Mauritian entity at the time the alleged contraventions took place, i.e. in 2008; citing the well settled law on deemed liability provisions such as Sec. 42(1) of FEMA The tribunal held that exorbitant penalty had been imposed on individuals without recording any findings on their specific roles. “Mere fact that individuals were directors in a company cannot be the sole basis for imposition of penalty,” the tribunal said.

The tribunal further observed that 'there has been no loss to the exchequer, funds remained in India, remittances were utilised for the purpose for which they were intended and above all, Rajasthan Royals franchise has participated in IPL since 2008.'

Further the tribunal, without any further allegations of FEMA contraventions invoked the settled principle of 'proportionality', which according to it, must guide imposition of penalties in quasi-criminal proceedings. “Exercise of discretion while determining the quantum of penalty must be fair, objective and based on relevant considerations. Such exercise of discretion cannot be based on arbitrary, vague or fanciful considerations,” the tribunal said.

Published on September 05, 2019
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