ED Failed To Apply Proportionality Doctrine: Bombay HC Affirms Tribunal's Decision To Reduce Penalty On Jaipur IPL Cricket Pvt Ltd
The Bombay High Court held that the Special Director failed to apply the doctrine of proportionality in a case involving Jaipur IPL Cricket Pvt Ltd.
The Court affirmed the decision of the Appellate Tribunal for SAFEMA, FEMA, NDPS, PMLA & PBPT Act (Tribunal) to reduce the total penalty imposed on Jaipur IPL Cricket Pvt Ltd from Rs.98.35 Crores to Rs.15 Crores.
The Court noted that the Special Director had failed to provide any justification regarding the basis for imposing the maximum penalty, particularly when considering the alleged acts attributed to each individual. However, the Tribunal, after a thorough examination of relevant material, intervened and reduced the penalty.
The Bench comprising Justice K.R. Shriram and Justice Neela Gokhale observed, “We find that the Special Director has completely failed to apply the doctrine of proportionality as interpreted and elucidated by the Apex Court in its various decisions, while choosing to impose maximum penalty on Respondents. Having gone through the impugned order, this Court does not find anything perverse in the findings, reasoning and conclusion of the Tribunal”.
Advocate Ashish Chavan appeared for the Appellants and Advocate Rohan P. Shah appeared for the Respondents.
The case originated from inquiries initiated by the Mumbai Zonal Office of the Directorate of Enforcement into irregularities in the Indian Premier League (IPL) organized by the Board of Control for Cricket in India (BCCI). The investigation uncovered irregularities in the ownership allotment process of IPL teams, specifically related to deposits made during the bidding process by Jaipur IPL Cricket Pvt. Ltd. and its Directors and Promoters (the Respondents). These deposits were found to contravene various FEMA provisions and related regulations.
The Appeals were filed under Section 35 of the Foreign Exchange Management Act, 1999 (FEMA), challenging a Tribunal order. The Tribunal had modified the decision by the Special Director of Enforcement. The Tribunal reduced the total penalty on the Appellants from Rs.98.35 Crores to Rs.15 Crores.
The Court framed the following issue: “Whether the Tribunal's interference with the Special Director's order is justified, and this evaluation is based on the doctrine of proportionality”.
The Court observed that the Special Director's order while acknowledging the contravention of FEMA provisions, lacked an explanation for imposing the maximum penalty. The Special Director determined the penalty by tripling the sum involved in the contravention, as alleged by the Enforcement Directorate's Investigating Officer, under Section 13(1A) of FEMA. In contrast, the Bench noted that the Tribunal scrutinized each charge and found that an excessive penalty was imposed on individuals without specifying their roles.
Furthermore, the Court noted that proving an individual's role, particularly in day-to-day management, is the Department's responsibility, and the Tribunal found that the Department failed to fulfil this burden. The Special Director justified the penalty by repeating FEMA provisions without discussing the specific actions justifying such a penalty for each individual. The Tribunal emphasized that imposing the maximum penalty requires demonstrating the person's responsibility for the company's functioning, being in charge, and having a motive to benefit from the transaction.
Additionally, the Bench observed that the Tribunal concluded a lack of malicious intent and guilt on the part of the Respondents, criticizing the Special Director for not discussing the specific roles of individual Respondents to justify invoking FEMA provisions and imposing the maximum penalty.
The Court noted that the Tribunal, in its overall assessment, has concluded that no loss was caused to the exchequer. The remittances entered and stayed in India; no foreign exchange went out of the country. The remittances were utilized for their intended purposes, with no allegation of misuse for extraneous purposes. The entities involved did not gain any benefit and suffered significant financial detriment as shares with beneficial transferable interest were not issued against remittances for the past 11 years.
Additionally, the Bench noted that the Rajasthan Royals franchise has participated in the IPL since 2008 without any other allegations of contravening FEMA provisions or related regulations. The Court noted that the Tribunal had meticulously examined all pertinent facts and arrived at its conclusion based on the evidence presented. The findings were not perverse, and there is no apparent question of law arising from the case.
The Court observed that the Special Director had failed to provide adequate justification for imposing the maximum penalty, while the Tribunal, after a thorough examination of relevant material, intervened and reduced the penalty.
The Bench emphasized that the Special Director failed to adhere to the doctrine of proportionality when imposing the maximum penalty on the Respondents. After a thorough review of the challenged order, the Court found no perversity in the Tribunal's findings, reasoning, and conclusions. The Court aligns with the Tribunal's determination that the Special Director's order is unsustainable due to the absence of any discussion or justification regarding the basis for imposing the maximum penalty, particularly when considering the alleged acts attributed to each individual.
Accordingly, the Court dismissed the Appeal and affirmed the judgment of the Tribunal.
Cause Title: The Special Director v Jaipur IPL Cricket Pvt. Ltd (2023:BHC-AS:37322-DB)
