Tuesday, October 5, 2010

ECB Norms Violation . Rs 125 Crores was slapped on Reliance Infrastructure by RBI !!

ECB Norms Violation . Rs 125 Crores was slapped on Reliance Infrastructure by RBI

Under FEMA guidelines issued in 2000,  and as well as under  RBI Master circular on ECB 07/09/10 dated 1-7-2010 , a borrower is required to keep ECB funds parked abroad till the actual requirement in India. Further,  as per RBI norms, a borrower cannot utilize the funds for any other purpose as there is end use restrictions for ECB.

However, Reliance Infrastructure now Reliance Energy has parked its foreign loan proceeds worth $300 million with its mutual fund in India for 315 days, and then repatriated the money abroad to a joint venture company. These actions, according to an RBI , violated various provisions of the Foreign Exchange Management Act (FEMA).

Reliance Energy admitted that there was contravention and sought compounding. The company said due to unforeseen circumstances, its Dadri power project was delayed. Therefore, the ECB proceeds of $300 million were bought to India and was parked in liquid debt mutual fund schemes, it added.

Afterward, Reliance Energy repatriated the above sum for alternate use of investment in an overseas joint venture on March 5, 2008.

In doing so, Reliance had not applied for prior approval of RBI as it contravened the end use restrictions and also it repatriated the ECB funds for investments in its overseas joint venture without prior approval of RBI.

For the justification of its levy of fine of Rs 125 Crores , RBI viewed that as the Reliance has made additional income of Rs 124 crores by parking its ECB in its mutual funds in contravention of ECB end use restrictions , Reliance Energy was  liable to pay a fine of Rs 124.68 crores.

Courtesy : Economic Times

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