Citizens abroad for the long term are non-residents under FERA: HC
MUMBAI: The Bombay high court on Wednesday observed that persons staying abroad with no clear intention of returning to India would be treated as 'persons resident outside India' under the Foreign Exchange Regulation Act (FERA), and upheld a penalty of ₹ 1.4 crore against a family which purchased a huge amount of shares from an Indian company without prior appeal to the Reserve Bank of India (RBI). (Shutterstock)
The case dates back to the mid-1990s, when a series of share transactions was carried out by the Shroff family and its company Sujay Trading Corporation Pvt Ltd. The Enforcement Directorate (ED) on November 18, 1999, had served the family with a notice, stating that Shroff's daughters, who were residents of the United States, had purchased shares worth ₹ 16 lakh from a Mumbai-based company called Ditco Securities Pvt Ltd without taking prior approval from the RBI as prescribed under FERA.
Remarking that the daughters were 'persons resident outside India' under FERA, the ED stated that they were married in the US and had been settled there for a few years. Highlighting their lack of intention of returning to India permanently and the purchase of shares from an Indian company without the RBI's approval resulted in the ED penalising them on October 30, 2000. The three daughters were charged an amount of ₹ 41 lakh each, ₹ 25.8 lakh was levied on their father, and ₹ 8.5 lakh on Sujay Trading Pvt Ltd, which was run by the parents.
Aggrieved by this, the Shroff family approached the Appellate Tribunal for Foreign Exchange, which upheld the conclusions reached by the ED and dismissed the appeals on November 18, 2005.
Subsequently, the family appealed in the Bombay high court in 2006, challenging the orders passed by the ED and the appellate tribunal. The family contended that the daughters were not 'persons resident outside India' but were students pursuing their higher studies in the US. Therefore, there was no need for them to obtain permission from the RBI for the purchase of shares in an Indian company. Based on this defence, they submitted that there was no violation of any of the provisions of FERA.
Highlighting the clear intentions of the Shroff daughters to settle in the US, the ED clarified that it had taken the decision after evaluating the relevant documents. It stated that the penalties imposed on the Shroffs were proportionate to the economic offence, and were legally sound.
The division bench of Justices M S Sonak and Jitendra Jain upheld the decision of the ED and the appellate tribunal and observed that the daughters' prolonged stay in the US clearly reflected their intention to permanently settle abroad, thereby establishing them as 'persons resident outside India'. It held that the evidence, such as their marriage and their continued stay outside India since the 1980s, corroborated their intentions.
The court further stated that merely holding an Indian citizenship or a student visa did not exempt them from the provisions of FERA. With no exemptions proven by the family, the bench held that there was no error in the findings by the authorities and upheld the penalties. 'Considering the magnitude of the transactions and the circumstances in which the same were carried out, there is no substance in the argument based on any alleged disproportionality in the penalty amounts, ' it added.
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