SAFEMA Clarifies Employee Accountability Under FEMA

Introduction

The Appellate Tribunal under SAFEMA, in its decision of Faiyaz Shamim v. Directorate of Enforcement, Kolkata,[i] discussed the provisions of the Foreign Exchange Management Act (‘FEMA’) and the contraventions committed by the employee of the company while discharging his official duties.

Facts

• Two appeals were filed before the Appellate Tribunal under s. 19 of the FEMA read with r. 10 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000, against the penalty of Rs. 1,00,000 imposed against the employee and the finance manager under s. 5 of FEMA read with r. 5 of Foreign Exchange Management (Current Account Transaction) Rules, 2000 (‘Current Account Rules’).

• Two Traveller’s Cheques (‘TCs’) worth $25,000 each were issued by Dinmay Exim Avenue Limited (‘Company’) in favour of Mr. Faiyaz Shamim, who was leaving India, to inspect the goods and to incur necessary expenses. The Director of Enforcement seized the said TCs and INR 10,000 on 19.09.2003 at Chennai Airport.

• In response to the summons, the company's director submitted that the procurement of foreign exchange was finalised by the Company. The two TCs were separately drawn from two foreign exchange dealers, as permissible under the Current Account Rules. The Commissioner of Customs (AIR), Chennai, imposed a fine totalling Rs. 3,50,000.

• Mr. Sanjay Mukherjee, the company's finance manager, submitted that the two TCs were acquired without his knowledge, which was a lapse on the Company’s part. Mr. Faiyaz Shamim had never handled TCs and had no knowledge of the quantum he was carrying, contravening the Current Account Rules.

Held

• The appeals were partly allowed in favour of the appellants, and the penalty was reduced to Rs. 50,000 each for both appellants owing to their minor roles in the issuance of TCs and their status as employees of the company.

• It was further decided that Mr. Faiyaz Shamim's ignorance of the law is not an excuse, and it was the appellant's duty to verify the position as laid down by law before obtaining an additional $25,000 from the company for the expenses.

• It was further decided that Mr. Sanjay Mukherjee and the company have admitted the violation. He intentionally did not associate with the drawing of an additional $25,000 or otherwise and thus was vicariously liable for the acts committed in contravention of FEMA.

Our Analysis

This decision of the Appellate Tribunal clarifies that ignorance of the law is no excuse, and the employee stands liable for any contravention under FEMA that may result from such ignorance in the course of their employment. However, their status as an employee may result in a lesser punishment. Nonetheless, it does not absolve them of liability.

The outcome of this case highlights the importance of awareness and training for employees handling foreign exchange transactions. Companies may invest more in training programs to ensure that their staff is well-versed with regulatory requirements and the legal implications of non-compliance.

Further, the judgment reinforces the need for companies to ensure strict regulatory compliance. It sends a clear message that violations, whether due to oversight or intentional non-compliance, will attract penalties. This could lead to companies adopting more rigorous compliance mechanisms to avoid similar repercussions.

End Note

[i] FPA-FE-33& 32/KOL/2018 dated 08.07.2024.

Authored by Rosy Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion