What is Compounding of Offence under FEMA?
Compounding refers to the
process of voluntarily admitting to a breach, pleading guilty and seeking
redressal.
Why Welspun Group Asked to pay a fine of Rs 55.25 Crores?
The $3.5 billion Welspun Group may have to pay a fine of Rs.55.25
crore to the Enforcement Directorate (ED) for breaking foreign exchange rules
after the group failed to comply with a compounding order from the Reserve Bank
of India (RBI) under the Foreign Exchange Management Act (Fema).
The ED, the agency that
investigates cases of forex violations,
imposed a penalty of Rs.55.25 crore on Welspun Corp. Ltd in
August 2013 for violating overseas
direct investment norms pertaining to an investment in its joint venture
firm Red
Lebondal Ltd in Cyprus
in 2008.
What is the offence committed by
Welspun Group?
The group acquired shares
in Red Lebondal but did not remit the money to the Cyprus firm, according to
the ED.
The agency also said three
Welspun Group companies in India later gave corporate guarantees to help Red
Lebondal raise loans abroad for
its business. However, the ED found that Red Lebondal did not have a bona fide
business as the loan raised by it was sent back to India as investment in one
of the Welspun group firms.
The agency has also found
that Welspun Group indulged in round tripping—a form of money laundering.
Under Fema norms, Indian
companies can give guarantees to foreign subsidiaries only for the business of
that subsidiary.
SUE MOTTO APPROACH BY WELSPUN GROUP FOR COMPOUNDING
In October, Welspun Group
approached the RBI for compounding of its contraventions under Fema. The
central bank in April passed a compounding order directing Welspun Corp. to pay
up Rs.40
crore within 15 days of the date of its order. However, the company has not complied
with the RBI order.
The group however, is
planning to appeal the ED order in an appellate tribunal.
Welspun Group Total Loan Obligations
Welspun Group has a
presence in the pipes, plates, coils, steel, infrastructure, energy and home
textiles sectors.
The total debt of the four
listed companies of the Welspun Group was at Rs.6, 500 crore on 31 March. These companies include Welspun Corp.
Ltd, Welspun India Ltd, Welspun Syntex
India Ltd and Welspun
Projects Ltd. The debt of Welspun Corp. is at Rs.3, 220
crore.
Whether Welspun Group will succeed in its Appeal?
There are chances for the
Welspun Group to minimize its fine if the appeal is still pending. Under
current scenario, Welspun group has to pay a minimum of fine under compounding of
minimum of Rs 10000 + Rs 1, 00,000 per annum instead 45 Crores slapped on it
for Overseas Direct Investment Violations.
However, for the alleged
money –laundering or round-tripping offences, It has to substantiate that it
has not contravened the provisions of the FEMA to escape prosecution and fines.
Courtesy: http://www.livemint.com/ 2014
