VENKAT N.R.AKKINENI Vs. APPELLATE TRIBUNAL FOR FOREIGN EXCHANGE, MINISTRY OF LAW JUSTICE & COMPANY AFFAIRS

JUDGEMENT

(1.) The two second appeals are directed against the orders of the Appellate Tribunal for Foreign Exchange, New Delhi (the Appellate Tribunal, for short), in Appeal Nos. 125 of 2006 and 124 of 2006. A common order was passed by the Appellate Tribunal on 22-10-2008 in the two appeals. The appellants herein assailed the orders of the Appellate Tribunal. C.M.S.A. No. 2 of 2009 is by the Managing Director of M/s. Heart Entertainment Limited, Hyderabad. C.M.S.A. No. 3 of 2009 is by the Company itself viz., M/s. Heart Entertainment Limited, Hyderabad. As the appeals arise common questions, both the appeals are disposed of through this common judgment. M/s. Heart Entertainment Limited, Hyderabad (the Company, for short), obtained the approval of the Reserve Bank of India (RBI, for short) for establishing a foreign concern in the United States of America (the USA, for short) in the field of animation software. The Company invested US $ 1,75,000 through two installments in August, 1999. The Company however did not follow Regulation 15(iii) of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 (the Regulations, 2000, for short) vide Notification No. FEMA 19/RB-2000, dated 03-5-2000, as it failed to submit Annual Performance Report (APR, for short). The Company also failed to furnish the information called for under Section 37 of the Foreign Exchange Management Act, 1999 (FEMA, for short) read with Section 131(1A) of the Income Tax Act, 1961, by failing to furnish information and details such as copies of the Audited Annual Accounts, APRs, copies of the Share Certificates and other documents in evidence of investment in foreign equity together with the details of dividend and royalty.

(2.) The Company responded to the Notice dated 27-02-2003 through reply dated 30-6-2004 that the Company obtained approval from the RBI on 02-02-1999 for investment of US $ 1,75,000 in Overseas Joint Venture in the USA, that the Company held 35% of the equity stock in M/s. Startoons Incorporation (Inc.,), that the Company has executed works worth US $ 2,27,430 and that the Company received Share Certificate from M/s. Startoons International LLC (Limited Liability Company), USA, for US $ 1,75,000. The Company further claimed that no dividend could be declared as the Company went into losses on account of slump in animation industry and that the Company had to close the operations to avoid further losses. It also claimed that the APRs could not be furnished to the RBI and that the Company did not provide the requisite details which was because the accounts of LLC were not compulsorily auditable under the United States Local Laws. The Company claimed that it submitted APRs for the years 2000 to 2003 to the RBI and that the audited financial statements, Directors' Report and Certificate of Incorporation of the Joint Venture could not be furnished owing to circumstances beyond the control of the Company.

(3.) Considering that the Company contravened the provisions of Section 6(3) of FEMA read with Regulation 15(iii) of the Regulations, 2000 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 through Notification No. 456(E) (FEMA 19/2000-RB, dated 03-5-2000) of the RBI] and rendered themselves liable to be proceeded against under Section 13(1) of FEMA, 1999, Show Cause Notice dated 18-02-2005 was issued to the Company. Show Cause Notice was also issued to the Managing Director in terms of Section 42(1) of FEMA holding that the Managing Director was responsible for the non-compliance of the Rules and Regulations.