By Appellate Tribunal under SEFERA
In the matter of M/s Vedanta Ltd. Vs The Special Director Directorate of Enforcement
The Appeal is filed against the impugned order wherein the penalty is imposed on the Appellant Company and its directors. M/s Sterlite Industries Private Limited is promoted and managed by Mr. D P Aggarwal and his sons Anil Aggarwal, Navin Aggarwal, and Praveen Aggarwal. An investment of INR 208 Crores was made in M/s Sterlite by M/s Twinstar Holding Limited (M/s Twinstar), which is a company incorporated in Mauritius. M/s Twinstar was itself having paid up capital of USD 100. D P Aggarwal was the Director of M/s Twinstar and was also the former director of M/s Sterlite. M/s Twinstar did not have enough capital to invest Rs.208 Crores in various companies, the respondent presumed that the appellants diverted Rs.208 Crores to route it through the foreign entity for investment in the Indian company. SCN was issued to Mr. D P Aggarwal to prove the source of INR 208 Crores.
The Appellant contended that the Impugned order was issued based on presumptions. The Tribunal held that the Appellant was summoned many times but did not appear to disclose the source. The respondents were satisfied with their efforts to prove the case. However, The appellants failed to prove their innocence. They could have produced the relevant documents to show the source of Rs.208 Crores of M/s Twinstar. The appellants’ main argument of putting the burden of proof on the respondents even though they discharged their part of the burden, cannot be accepted. Accordingly, there is no reason to cause interference in the impugned order.
Read Also: PAN 2.0 Receives CCEA Approval| CBDT Issued FAQs on PAN 2.0
1. Brief facts of the case:
- The appeal is filed by the Appellant to challenge the order passed by the Adjudicating authority imposing the penalty of the following amount for contravention of Section 8(1) of the Foreign Exchange Regulations Act, 1973:
- Appellant Company: INR 20 Crores
- Directors: INR 5 Crores on each director
- The penalty is imposed for the transfer of INR 208 Crores without previous, general, or specific permission from the Reserve Bank of India.
- M/s Sterlite Industries (I) Limited (“The Sterlite”) is promoted and managed by Mr. D P Aggarwal and his sons Anil Aggarwal, Navin Aggarwal, and Praveen Aggarwal.
- M/s Twinstar Holding Limited (“M/s Twinstar”), having a paid-up share capital of USD 100, is a company registered in Mauritius and it holds 36 Lakh shares in the Appellant Company. The assumption was drawn that the funds transferred by M/s Twinstar were arranged by the Appellant.
- M/s Sterlite had various group companies and M/s Twinstar held 100% capital investment in M/s Sterlite and all group companies to the tune of INR 73 Crores. M/s Twinstar has invested INR 208 Crores in M/s Sterlite and all the group companies.
- D P Aggarwal was the Director of M/s Twinstar and was also the former director of M/s Sterlite.
- M/s Twinstar did not have enough capital to invest Rs.208 Crores in various companies, the respondent presumed that the appellants diverted Rs.208 Crores to route it through the foreign entity for investment in the Indian company.
- Since it was without permission of the RBI and even without compliance with the provisions of the FERA Act, 1973, the order was passed finding contravention of the provisions and accordingly the penalty was imposed.
2. Contention of the Appellant
The Appellant Contended that:
- The impugned order is passed on the presumption that Rs.208 Crores were routed by the appellants to bring it back to India through an offshore company. However, The respondent failed to produce any document or material to connect such allegations.
- The penalty could not have been imposed based on presumption.
- The respondents could have called the bank statement of M/s Twinstar to find out the source of Rs.208 Crores but no effort for it was made and on account of their failure to get the documents, the presumption could not have been drawn against the appellants.
- Further, the investment in the share of the appellants’ company by M/s Twinstar was made with the approval of the RBI and thereby no contravention could have been alleged.
- The respondents have alleged the contravention of Section 8(1) of the FERA Act, 1973. The entire exercise is based on presumption. The respondents presumed that foreign exchange equivalent to Rs.208 Crores was transferred to M/s Twinstar in contravention of Section 8(1) of the Act of 1973 by the Appellant.
- The entire order is based on presumption and thus not sustainable in the eyes of law.
3. Contention of the respondent:
The Respondent made following submissions:
- An amount of INR 208 Crores was received as an investment in different entities of the appellant company. The amount was transferred by M/s Twinstar at Mauritius, which itself has a capital of 100 USD. The company had no source to invest 208 Crores in the appellant company or its entities.
- M/s Twinstar is a subsidiary of M/s Volcan Investments Ltd., incorporated in the Bahamas, but the said company also has a capital of USD 2 only. There was no means for M/s Twinstar to invest Rs.208 Crores in different companies.
- Thereby it was taken to be a case where initially the amount of Rs.208 Crores was remitted to M/s Twinstar by the appellants and thereupon it was received back as investment in pursuance to the permission of the RBI.
- Despite an opportunity to prove the source of Rs.208 Crores by M/s Twinstar, the appellants failed to prove it by producing adequate evidence. Therefore, the respondents had rightly taken it to be a case where initially Rs.208 Crores were diverted by the appellants to the offshore company to get it back as an investment.
- Therefore, a case was rightly taken up against the appellants, and finding contravention, the penalty was imposed.
4. Finding and Analysis by the Tribunal
The Tribunal made following findings and analysis:
- After the SCN gave the appellants an opportunity for hearing, the penalty of Rs.20 Crores and INR 5 Crores were imposed on the appellant company and other appellants.
- It is not in dispute that an amount of INR 208 Crores was invested by M/s Twinstar in M/s Sterlite Group companies though its capital was only USD 100. No material was produced to show the source of M/s Twinstar to invest 208 crores while its paid-up capital was USD 100 only.
- Further, the Investment was made with the permission and approval of the RBI but the issue was as to from where the funds of Rs.208 Crores came to M/s Twinstar.
- The initial burden of proof was on the respondents. The appellant utterly failed to discharge their obligation and therefore, the respondents rightly concluded about the transfer of the funds of Rs.208 Crores by the appellants in contravention of the provisions of the Act of 1973 for routing it back to the appellant company and its entities.
- The appellant D.P. Agarwal was the Director in the appellant company and also in M/s Twinstar, thus custodian of record. He was summoned many times but did not appear to disclose the source.
- Therefore, The respondents were satisfied with their efforts to prove the case. However, The appellants failed to prove their innocence. They could have produced the relevant documents to show the source of Rs.208 Crores of M/s Twinstar.
- The appellants contented that they were not having control on M/s Twinstar, rather it was on the respondents to prove that initially Rs.208 Crores were transferred by the appellants in contravention of FERA Act.
- The issue of burden of proof is a critical issue in this case. The appellants have casted burden of proof on the respondents while the respondents asserted it on the appellants.
- To analyze the issue, The respondents sent a summons to Shri D.P. Agarwal who was the Director of M/s Twinstar at Mauritius and was even of the appellant company but he did not turn up or respond to the summons. Shri D.P. Agarwal could have produced documents such as bank statements to show the source of the amount.
- Despite all the efforts by the respondents, Shri D.P. Agarwal did not turn up to make a statement or even produce the documents. The respondents made investigations to trace the source of investment.
- For this purpose, the reliance was placed on various judgments including the judgment of Apex court in the case of CIT Vs. Best and Co. (P) Ltd. (1965 SCC Online SC) wherein the applicability of the doctrine of adverse inference was discussed. In the judgment, it was held that:
- The expression “in the first instance” clearly indicates that it did not say so.
- When sufficient evidence, either direct or circumstantial, in respect of its contention was disclosed by the Revenue, an adverse inference could be drawn against the assessee if he failed to put before the Department material that was in his exclusive possession.
- This process is described in the law of evidence as shifting the onus in the course of a proceeding from one party to the other.
- The appellants’ main argument of putting the burden of proof on the respondents even though they discharged their part of the burden, cannot be accepted.
- The appellant Shri D.P. Agarwal was holding a position in M/s Twinstar and was summoned but failed to appear and produce the documents. He did not respond to the summons.
- It cannot be to his benefit or given a premium to non-response. Rather, an adverse inference can safely be drawn against the appellant.
5. Ruling by the Tribunal
The Tribunal held that:
- Arguments of the Appellant are unacceptable and against an amount of Rs.208 Crores, a penalty of only Rs. 20 Crores has been imposed on the company and Rs.5 Crores each on the individuals holding the position in the company.
- Accordingly, There is no reason to cause interference in the impugned order.
