The Appellate Tribunal under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act (SAFEMA) has set aside the Enforcement Directorate’s (ED) penalties arising out of the foreign exchange remittances made for conducting the 2009 Indian Premier League (IPL) in South Africa.
The bench of Justice Munishwar Nath Bhandari (Chairman) and Rajesh Malhotra (Member) held that the remittances made by the Board of Control for Cricket in India (BCCI) to Cricket South Africa (CSA) were current account transactions and not capital account transactions, thereby negating the very foundation of the adjudication proceedings.
The controversy originated from the decision to shift the second season of the IPL in 2009 from India to South Africa because of security concerns arising from the General Elections in India.
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During its investigation, the Enforcement Directorate alleged that BCCI had remitted substantial foreign exchange to Cricket South Africa without obtaining the Reserve Bank of India’s prior approval. According to the ED, BCCI effectively controlled a dedicated bank account maintained in South Africa through CSA and thereby committed multiple contraventions of FEMA and the relevant regulations.
The investigation resulted in twelve separate show cause notices, alleging violations under various provisions of FEMA relating to foreign remittances, foreign currency accounts, realization and repatriation of foreign exchange, borrowing and lending in foreign exchange, and obligations of authorised dealers.
The Special Director of Enforcement imposed substantial penalties upon BCCI and its office bearers, besides imposing penalties on the authorised dealer bank and its Chief Manager.
Among the penalties imposed were ₹50 crore on BCCI under one of the principal show cause notices; Separate penalties running into several crores against Lalit Modi, N. Srinivasan and M.P. Pandove under different notices; ₹7 crore on the authorised dealer bank; and ₹10 lakh on former Chief Manager A.K. Nazeer Khan.
The principal allegation was that BCCI had remitted approximately USD 4.986 crore (around ₹243.45 crore) outside India without obtaining RBI approval and had therefore violated FEMA.
BCCI argued that the payments made to Cricket South Africa were made under a valid Heads of Agreement dated March 30, 2009, under which CSA agreed to provide infrastructure, stadiums, logistics and related services for hosting IPL-2 in South Africa.
According to the BCCI, these payments represented ordinary business expenditure incurred for conducting a sporting event and therefore squarely fell within the definition of current account transactions under Section 2(j) read with Section 5 of FEMA.
The Board further contended that no enduring asset was acquired abroad; the transactions merely related to payment for services; RBI approval was unnecessary for such current account transactions; and the adjudicating authority travelled beyond the show cause notices by treating the remittances as capital account transactions for the first time in the final order.
The State Bank of India argued that it had acted only as an Authorised Dealer under FEMA and processed the remittances after obtaining duly completed Form A-2 applications, Chartered Accountant certificates and supporting documentation.
The bank submitted that every transaction had been reported to RBI through statutory returns and that no objection had ever been raised by the central bank.
Former Chief Manager A.K. Nazeer Khan contended that he merely processed the remittances in the ordinary course of banking business and had neither acted with mala fides nor derived any personal benefit. He further argued that Section 42 of FEMA requires proof of consent, connivance or negligence before vicarious liability can be imposed.
The Tribunal examined the background in which IPL-2 was shifted to South Africa and analysed the contractual arrangement between BCCI and Cricket South Africa.
It noted that the agreement required CSA to arrange stadiums, logistics and other facilities for conducting the tournament while maintaining a dedicated account through which tournament-related expenses would be met. Although the BCCI retained contractual oversight over utilisation of funds, the Tribunal examined whether the remittances themselves created any capital asset or enduring advantage.
The Tribunal also considered the statutory distinction between current account transactions and capital account transactions under FEMA while evaluating the legality of the penalties.
Several appellants also alleged serious procedural irregularities during adjudication.
Among the principal grievances were the finding that the remittances constituted capital account transactions was absent from the show cause notices; adequate opportunity to respond was not granted; requests for documents and cross-examination were rejected; the adjudicating authority relied upon grounds not contained in the original notices; and proceedings continued for several years despite FEMA prescribing expeditious adjudication.
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