The Special Director, Directorate of Enforcement, (WR) Directorate of Enforcement, Janmabhoomi Chambers v. Jaipur IPL Cricket Pvt. Ltd

(Per Dr. Neela Gokhale, J.)

These Appeals under Section 35 of the Foreign Exchange Management Act, 1999 (“FEMA”) are directed against order dated 11th July 2019 passed by the Appellate Tribunal for SAFEMA, FEMA, NDPS, PMLA & PBPT Act (“the Tribunal”), modifying the order passed by the Special Director of Enforcement to the extent of reducing the quantum of total penalty imposed upon the Appellants which totaled to Rs.98.35 Crores to Rs.15 Crores only. The Tribunal has thus held that the amount of Rs.15 Crores already deposited by Appellants pursuant to the directions of this Court dated 21st January 2015 is reasonable and the same be treated as penalty for the contravention of the Act as held by the Tribunal.

The facts emerging from the Appeals are: (a) On receipt of information, inquiries were initiated by the Gaikwad RD 8/28 901-911-FEMA-1-2020+-J.doc Mumbai Zonal Office of the Directorate of Enforcement in the functioning of the Twenty-Twenty cricket tournament popularly known as ‘the Indian Premier League’ (“IPL”) organized by the Board of Control for Cricket in India (“BCCI”). BCCI was called upon to furnish certain information on the basis on which, it was felt that there were large scale irregularities in the conduct and functioning of the IPL and its franchisees. A comprehensive investigation revealed certain irregularities in the context of Respondents. (b) The process of allotting ownership of teams for IPL commenced by floating an Invitation to Tender (“ITT”) to any person to submit a bid to own and operate a team for participation in the IPL. The bidders were required to choose from eight locations to operate their teams, viz., Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Mohali and Jaipur. The person being awarded ownership of a team is known as a 'franchisee.' Each successful bidder would be allotted only one team. Several criteria with respect to eligibility and fitness were stipulated and laid down in the ITT. One such criteria was the performance deposit of US$5 million equivalent to Rs. 20 Crores.

The present Appeals relate to the deposits from various sources made during the bidding process by Jaipur IPL Cricket Pvt. Ltd. and its Directors and Promoters, the Respondents herein which were held to be in contravention of the various provisions of FEMA and the regulations made thereunder. Gaikwad RD 9/28 901-911-FEMA-1-2020+-J.doc

One Emerging Media IPL Ltd., UK submitted a bid of US$ 67 millions (Rs.268 Crs.) for a team at Jaipur. This amount was to be paid in ten equal installments over a period of ten years. The franchise for Jaipur was known as ‘Rajasthan Royals’. The franchise agreement was signed by Jaipur IPL Cricket Pvt. Ltd. (“JIPL”) and the BCCI. Fraiser Castellino, the then CEO of JIPL ( Respondent in FEMA Appeal No.8 of 2021) executed the agreement on behalf of JIPL and one Lalit Modi, Vice President of BCCI and Chairman of IPL executed the same on behalf of BCCI.

The performance deposit of Rs.20,19,87,410.23 for JIPL was transferred from UK to the account of BCCI-IPL with HDFC Bank, Chennai. The said amount was transferred by one Manoj Badale (Respondent in FEMA Appeal No.2 of 2020) from UK on behalf of Emerging Media IPL Ltd. Subsequently, the franchise agreement was signed on 14th April 2008 and the balance deposit money, i.e., US$773,480.99 after the auction was paid by one EM Sporting Holdings Ltd., Mauritius (“EMSH”) (Respondent in FEMA Appeal No.7 of 2021) to BCCI. Thus, Manoj Badale and EMSH together paid a total amount of Rs.23,49,27.410/-. The documents furnished by JIPL clearly showed that JIPL was a wholly owned subsidiary of EMSH. The date of incorporation of EMSH was 5th May 2008 and that of JIPL was 8th March 2008. The paid-up capital of the company at incorporation was Rs.1 Crore having 10000 shares. Ranjit Gaikwad RD 10/28 901-911-FEMA-1-2020+-J.doc Barthakur (Respondent in FEMA Appeal No.1 of 2021) and Fraiser Castellino, both Directors of JIPL owned 5000 shares each.

All parties replied to the Show Cause Notices and all the parties were individually and personally heard by the Special Director of Enforcement. Statements of all Respondents were recorded and all parties were afforded opportunity to adduce evidence. The Special Director in his order dated 30th January 2013 recorded his satisfaction pertaining to all Respondents being guilty of contravening Section 6(3)(b) of FEMA read with Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 and paragraph 8 of Schedule I further read with Regulation 5 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations,

2000. Hence, in exercise of powers conferred on him under Section 13(1) of FEMA, the Special Director imposed penalty on each Respondent in the Appeals before us in respect of separate show cause notices as follows: Gaikwad RD 14/28 901-911-FEMA-1-2020+-J.doc Name of Respondent Penalty Imposed (Rs. In Crores) (i) JIPL (ii) Ranjit Bartakur (iii) Raghuram Iyer (iv) Fraiser Castellino (v) EMSH, Mauritius (vi) Bishwarnath Bachun (vii) Samila Sivaramen (viii) Barbara Jacqueline Haldi (ix) Suresh Chellaram (x) ND Investments LLP (xi) Manoj Badale Total

32.30

6.40

5.10

6.40

18.90

2.45

2.45

2.45

3.70

2.00

16.20

98.35 Thus, the Special Director held all Respondents guilty of having contravened the provisions of FEMA and the Regulations made thereunder and imposed penalty on individuals against the respective show cause notices. Total penalty of Rs. 98.35 Crores was directed to be paid in the office of the Directorate of Enforcement within 45 days from the date of receipt of the order.

Respondents assailed this order dated 30th January 2013 before the Tribunal. FEMA provides for a condition of pre-deposit of the penalty amount for preferring an Appeal. Respondents, therefore, made an application before the Tribunal seeking waiver of the Gaikwad RD 15/28 901-911-FEMA-1-2020+-J.doc condition of pre-deposit of the penalty amount and stay of the order dated 30th January 2013. On account of a difference of opinion amongst the members of the Tribunal, the matter was placed before the Chairman for decision and upon consideration of respective opinion of individual members of the Tribunal, the Chairman directed Respondents to deposit 40% of the penalty as a pre-deposit in addition to furnishing a bank guarantee for the remaining 60% amount of the Adjudication Order. The pre-deposit direction was assailed by Respondents in this Court by way of an Appeal. By its order dated 24th December 2014, this Court admitted the Appeals on three substantial questions of law, and after hearing the parties, this Court was pleased to conclude that the imposition of condition of cash deposit and bank guarantee failed to meet the ends of justice. Thus, by another order dated 21st January 2015, this Court was pleased to substitute the pre-deposit order of the Tribunal and directed Respondents to deposit total amount of Rs.15 Crores within eight weeks from the date of receipt of the order. This Court also directed the Tribunal to dispose the Appeals uninfluenced by its prima facie observations.

The Appeals were then heard by the Tribunal and the impugned order dated 11th July 2019 came to be passed. In its finding, the Tribunal has recorded that the various propositions of law raised by the parties are well settled by the Foreign Exchange Gaikwad RD 16/28 901-911-FEMA-1-2020+-J.doc Tribunal and various High Courts and the Supreme Court and the adjudicating officer is bound to follow the said decisions. The Tribunal has found the order of the Special Director to be perverse inasmuch as it failed to deal with many of the precedents of the High Courts and the Supreme Court which are binding on the Adjudicating officers. The Tribunal relied on many decisions especially the decision of the Apex Court in the matter of (a) Wimco Ltd. Vs Director of Enforcement,1 and (b) Union of India vs Kamalakshi Finance Corporation Ltd.2 The Tribunal has re-appreciated the evidence minutely and concluded absence of any intention or mens rea on the part of Respondents in contravening the provisions of FEMA. Many Respondents, who are individuals were not in charge of the day-to-day management of the entities and were not even aware of the remittances in the manner alleged as illegal. The Tribunal has thus held that the parameters laid down by the Supreme Court and the High Courts for imposition of penalty in quasi criminal proceedings such as the present case are not wholly satisfied and hence, imposition of an exorbitant penalty totalling to Rs.98.35 Crores be reduced to Rs.15 Crores. It is this reduction in the amount of penalty which is assailed by Appellant in the present Appeals. The penalties as imposed by Special Director and as modified by the Tribunal read as under: 1997(94) Taxman 542. 1992 Supp (1) SCC 547. 1 2 Gaikwad RD 17/28 901-911-FEMA-1-2020+-J.doc Appeal No. Name of Respondent Penalty Imposed by the Special Director (Rs. In Crores) Penalty reduced by the Tribunal as in the Impugned Order (Rs. In Crores) JIPL Ranjit Bartakur Raghuram Iyer Fraiser Castellino EMSH, Mauritius Bishwarnath Bachun Samila Sivaramen Barbara Jacqueline Haldi Suresh Chellaram ND LLP Investments Manoj Badale TOTAL

32.30

6.40

5.10

6.40

18.90

2.45

2.45

2.45

3.70

2.00

16.20

98.35

7.00

1.00 Nil

1.00

2.00 Nil Nil Nil Nil

2.00

2.00

15.00

Mr. Ashish Chavan, learned Counsel for Appellants has criticized the findings of the Tribunal by saying that the Tribunal ought not to have taken a lenient view and has erred in holding the contraventions of the provisions of FEMA by Respondents as merely technical. Mr. Chavan submitted that the Tribunal ought to have appreciated that the arrangement of the flow of funds by Respondents was made to route the investments through Mauritius as the funds flowing into India from UK was not permissible especially Gaikwad RD 18/28 901-911-FEMA-1-2020+-J.doc in the light of admitted fact that they did not have the approval of the RBI and the FIBP. Further, the Tribunal has not recorded any justification in reducing the quantum of penalty especially in view of the gross contraventions of the provisions of the FEMA by Respondents which caused a significant loss to Government exchequer. So saying, he proposed as many as sixteen questions of law terming them to be 'Substantial Questions of Law' that needed to be determined by this Court.

On the other hand, Mr. Rohan Shah, Counsel appearing for Respondents defended the impugned order by drawing our attention to various decisions of the Constitutional Courts pertaining to the scope of judicial review under Section 35 of the FEMA, laying down the parameters on which an Appeal of such a kind be entertained and the justification of interference with a finding of fact as a question of law. He also canvassed the doctrine of proportionality vis-a-vis justification of interference by an Appellate Court. He took us through the order passed by the Special Director of Enforcement and pointed out the absence of any reasoning or justification for imposing maximum penalty as provided in the Act. The charges in the show- cause notices being answered in the affirmative yet there is no discussion on the quantum of penalty imposed on Respondents. On the contrary, the Tribunal has specifically dealt with each charge against Respondents individually and collectively and reasoned as to Gaikwad RD 19/28 901-911-FEMA-1-2020+-J.doc how the exorbitant penalty imposed on Respondents individually is inversely proportionate to the act attributed to each Respondent and thereby wholly unjustified. In fact, there is a categorical finding of perversity in the order passed by the Special Director. He has relied upon the following cases: Scope of judicial review under Section 35 of FEMA. (1) Mohtesham Mohd. Ismail v. Enforcement Directorate,3 (2) Union of India v. Amarjeet Singh,4 (3) SEBI v. Mega Corp. Ltd.,5 (4) Sir Shadi Lal Sugar and Geeneral Mills Ltd. v. CIT ,6 Doctrine of proportionality – Interference of Court when justified. (5) Excel Crop Care Ltd. v. CCI,7 (6) Hindustan Steel Ltd. v. State of Orissa,8 (7) Coimbatore District Central Coop. Bank v. Employees Assn.,9 Section 42(1)- “a person in-charge and responsible for the conduct of the affairs of a company” (8) Girdhari Lal Gupta v. D. H Mehta,10 (9) Katta Sujatha (Smt.) v. Fertilizers and Chemicals Travancore Ltd. & Anr.11

We have perused the order passed by the Special Director as well as the impugned order. We have also gone through the proposed