FEMA, or the foreign exchange law of India, regulates the flow of foreign exchange to and from India. In case the provisions of the law are contravened, penalty is leviable under FEMA and the levy is done through a formal adjudication process.
The adjudication under the Foreign Exchange Management Act, 1999 (‘FEMA’) is conducted by the Directorate of Enforcement (more commonly called the Enforcement Directorate (‘ED’)). At the very outset, it is important to keep in mind that ED is tasked with enforcing two laws in India. First is the money laundering law under the Prevention of Money Laundering Act, 2002 (‘PMLA’) which is a criminal statute. Second is the foreign exchange law under the FEMA which is primarily civil in nature.
In FEMA proceedings, the following main stages are involved:
Investigation
Complaint
Adjudication
Final Order
I. Investigation
In the investigation stage, the investigating officer of ED has the power of making inquiries, calling for information and recording the statements of various persons. After the inquiry/questioning, if the investigating officer feels that there has been a contravention of FEMA, a show cause notice would be issued to the person whereby an opportunity of being heard would be given. The said notice would contain the allegations against such noticee person and would seek a response as to why a complaint before the Adjudicating Authority for levy of penalty should not be filed by the investigating officer before the Adjudicating Authority.
II. Complaint
If the investigating officer is not satisfied with the response given by the person, he would then file a formal complaint before the Adjudicating Authority. The complaint would be a comprehensive document which would contain the exact allegations, facts of the case and the documents which the investigating officer is relying upon.
III. Adjudication
After the receipt of the complaint, the Adjudicating Authority would then proceed to hold an inquiry into the alleged contravention of FEMA by the person. However, before proceeding with such inquiry, the Adjudicating Authority would issue a notice to such person and seek response as to why the inquiry should not be held.
If the Adjudicating Authority is satisfied that an inquiry should be held, he will then proceed to fix a date for appearance of the person either personally or through an authorized representative. An opportunity to file evidences or documents would be given which is relevant for the purpose of inquiry. The inquiry by the Adjudicating Authority would be in terms of the procedure laid down in Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (‘Adjudication Rules’). The Adjudicating Authority has the power to issue summons and require attendance of any person for the purpose of inquiry.
Depending on the quantum involved in the contravention, the Adjudicating Authority can be the following officers working in the ED:
Director/Special Director - for amount exceeding Rs. 25 crore
Additional Director – for amount exceeding Rs. 10 crore but less than Rs. 25 crore
Joint Director – for amount exceeding Rs. 5 crore but less than Rs. 10 crore
Deputy Director - for amount exceeding Rs. 2 crore but less than Rs. 5 crore
Assistant Director – for amount up to 2 crore.
IV. Final Order
If after receiving the evidences, examining the documents and the accused, the Adjudicating Authority is of the opinion that the person has committed the contravention under FEMA, he will pass a reasoned order in writing imposing penalty under Section 13 of FEMA.
The penalty that can be imposed under Section 13 is as follows:
Up to 3 times the amount contravened where such amount is quantifiable, or
Up to 2 lakhs where the amount is not quantifiable and if the offence is a continuing offence, a further penalty which may extend to Rs. 5000 per day.
Appeal Mechanism
Once the final order is passed, the person against whom the order has been passed would have the option of appealing against such order either before the Special Director (in case the Adjudicating Authority is the Assistant Director) or the Appellate Tribunal (in other cases) within the specified time. Simultaneously, such person would also have to move an application seeking a stay on the deposit of penalty.
The Appellate Tribunal thereafter conducts its appellate proceedings (which may take considerable time) and passes the appellate order. In case the Appellate Tribunal rejects the appeal, the person would have the option of appealing this rejection before the High Court within a specified period of time. Further, even if the High Court decides the matter against the person, an appeal can be filed before the Supreme Court of India. The order of the Supreme Court would be final and binding on the person.
Authored by Editorial Team, Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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