Case No 1:
In one case, an OCB invested in India rupees 8.5 crores (approximately) with the prior approval of FIPB. The OCB wanted to set up a power plant in Chhattisgarh. There was a condition of local participation up to 40per cent. For four years they ran from pillar to post for several Government permissions.
Neither they got Government permission nor could they find a local investor. Ultimately, they were frustrated and gave up the project. Hence they transferred the funds to a sister company where the OCB already had some investments. The Company delayed in filing intimation. The Company could not allot shares to OCB as it could not locate a local investor which was a pre-condition of FIPB approval. In the meanwhile, RBI issued Circular No. 20 dated 14.12.2007 prohibiting allotment of shares beyond 180 days of receipt of funds.
For these offenses, RBI imposed a Compounding sum of more than Rs. 3 crores! Company admits the violations of non-intimation, non-filing of forms; and step down investment. Still, such a stiff penalty for all procedural violations where there is no foreign exchange loss and nothing illegal or immoral!!!
Case No 2
“An NRI couple – husband and wife promoted a company in India and personally became the shareholders. They also floated a wholly owned company in Mauritius. The Indian company decided to take an ECB. It is permitted on “automatic basis” from the shareholder. However, instead of taking loan from the individual shareholders, the Indian company took the ECB of USD 2.3 million from the Mauritian company which was owned by the same individuals.”
“This is a perfectly normal behavior in the international investment market. For the NRIs, investment in personal name or through their own offshore company is the same.
Still, RBI objected to it on technical ground that the Mauritius Company is not the shareholder/collaborator. Parties concerned apologized and assigned the ECB from Mauritian company to the shareholders. Compounding Authority did not accept the apology, ignored the substance of the investment and imposed a Compounding Sum of Rs. 45 lakhs.” This amounts to ignoring the substance of the matter & imposing punishment on technical grounds for an offence which does no harm to anyone.
According to critics, RBI has levied an improper and heavy fine on the erring companies.
In fact , Mumbai Chartered Accountant Association has represented the same to RBI ,Mumbai to desist from such heavy fines for simple non-filing or in case of non-intentional default.
Why I have raised the issue here is to educate and inform our fellow professionals to be more vigilant and careful in reporting to RBI.
Further , I think , if one fail to report due to inadvertence or due to lack of awareness in change of law , regional RBI always condone the delay unless it is deliberate and intentional.
Please attend one day seminar on FEMA on 17th September , 2016 at Hotel Vijay Park, Chennai