In a major relief for the Jaipur IPL Cricket Pvt. Ltd., which owns the Rajasthan Royals franchisee, the Bombay High Court has upheld the order the Appellate Tribunal for SAFEMA, FEMA, NDPS, PMLA & PBPT Act reducing the penalty imposed on the company from Rs 98.35 crore to Rs 15 crore.
ED's appeal dismissed
A division bench of Justices KR Shriram and Neela Gokhale, on Wednesday, dismissed the appeal filed by the Directorate of Enforcement (ED) challenging the order of the Appellate Tribunal of July 11, 2019.
The HC was hearing an appeal filed by the Special Director, ED (WR) challenging the 2019 order of the Appellate Tribunal modifying its order to the extent of reducing the quantum of total penalty imposed upon JIPL and its promoters from Rs 98.35 Crores to Rs 15 Crores only.
Background of case
Following a tip off, the Mumbai zone of ED initiated an inquiry into the functioning of the Indian Premier League (IPL) organized by the Board of Control for Cricket in India (BCCI). BCCI was asked to furnish certain information on the basis of which, it was felt that there were large scale irregularities in the conduct and functioning of the IPL and its franchisees. A comprehensive investigation revealed certain irregularities in the context of JIPL.
Invitation to Tender was floated to own and operate a team for participation in the IPL. Several criteria with respect to eligibility and fitness were laid down, including the performance deposit of US $5 million equivalent to Rs. 20 Crores.
ED's allegations
The case relates to the deposits from various sources made during the bidding process by JIPL and its Directors and Promoters which were held to be in contravention of the various provisions of FEMA and its regulations.
The ED alleged that JIPL and its promoters contravened the provisions of FEMA and hence issued four separate show cause notices on April 13, 2011. The Special Director, on January 30, 2013, held all Respondents guilty and imposed a penalty on individuals which totalled to Rs. 98.35 Crores.
JIPL and its directors and promoters challenged this ED order before the Tribunal, which held July 11, 2019 that the Special Director’s order was “perverse”. It said that the pre-deposit penalty of Rs 15 crore was sufficient.
ED challenged this before the HC claiming that the flow of funds by Respondents was made to route the investments through Mauritius as the funds flowing into India from UK was not permissible especially in the light of admitted fact that they did not have the approval of the RBI and the FIBP.
Doctrine of proportionality canvassed
JIPL canvassed the doctrine of proportionality and pointed out the absence of any reasoning or justification for imposing maximum penalty as provided in the Act. The court noted that the Tribunal has observed that there was no other way for Respondents to participate in the bidding process for the IPL franchise organised by the BCCI except by making remittance directly to the BCCI, which essentially accounts for a major portion of the total remittances in question
The HC also concurred with the tribunal’s order which said that no loss has been caused to the exchequer; and the remittances have come into India and remained in India. Also, the remittances were utilised for the purposes for which they were intended and there is not even an allegation of utilization of the money for extraneous purposes. Besides, the entities have not gained any benefit whatsoever. And lastly, Rajasthan Royals franchise has participated in the IPL since 2008 with no other allegation of contravening any FEMA provisions or regulations made thereunder, the court underlined.
“We find that in fact no justification has been recorded by the Special Director to impose a maximum penalty as opposed to the Tribunal having considered relevant material has interfered and reduced the penalty,” the bench concluded.
