Former Indian Premier League (IPL) Chairman Lalit Modi, former BCCI Secretary, N Srinivasan, and former BCCI treasurer MP Pandove will not have to deposit penalty for now in the alleged FEMA violation case related to transfer of funds to South Africa for organising the 2009 edition of the cash-rich league there.
The Enforcement Directorate (ED) had launched a probe in November 2011 against BCCI and top cricket board officials for making a payment to the tune of Rs 243 Crore to Cricket South Africa without the permission of Reserve Bank of India (RBI), which the enforcement agency had alleged was in violation of Foreign Exchange Management Act (FEMA).
In April 2015, the ED had informed the BCCI that adjudication proceedings be held against the cricket board. A personal hearing was held on 7 May, 2015 in which BCCI contested that due process was not followed while deciding the case. On 31 May 2018, the adjudicating authority imposed a penalty of Rs 82.66 crores which has been challenged by the BCCI.
Similarly, Rs 10.65 crore penalty was imposed on Lalit Modi, Rs 11.53 crore on N Srinivasan, Rs 9.72 crore on MP Pandove and Rs 7 crore as penalty on State Bank of Travancore, Jaipur branch (now merged with State Bank of India). The penalty imposed by adjudicating authority was contested by all parties, including Pandove, who was then an honorary treasurer of BCCI.
The Appellate Tribunal (FEMA), providing relief to former individual cricket officials, has asked the BCCI to deposit Rs 10 Crore against the total penalty imposed on its behalf as well as on behalf of officers charged by ED for FEMA violation. The tribunal has also made it clear that the issue of the individual penalty imposed by the adjudicating authority against officers will be considered at the time of final hearing of the appeal. The tribunal was of the view that the penalty imposed was very excessive and without application of mind.
The entire issue was triggered in March 2009 when the Centre had informed BCCI that due to the coinciding general elections, state governments would be unable to provide security for the second season of the IPL in 2009.
BCCI top brass had then decided to take the IPL matches abroad and the Indian cricket board signed an agreement with Cricket South Africa (CSA) on 30 March 2009 for hosting the T20 matches. In the show-cause notice issued by the adjudicating authority, it was alleged that the money transferred to South Africa was the total remittances made by BCCI to CSA to meet the expenses incurred or proposed to be incurred by them on behalf of BCCI, for the conduct of IPL in South Africa. These remittances were made against an agreement titled 'Heads of Agreement' dated 30 March 2009 executed between BCCI and CSA.
These remittances were made by BCCI from their bank account maintained with State Bank of Travancore, Jaipur branch covered under eight separate remittances, out of which, amounts totaling US$ 3,55,00,000 were made under six remittances during the period 31 March 2009 to 23 May 2009 and the remaining two remittances of US$ 40,00,000 & US$ 1,03,62,799.42 were made on 10 August 2009 and 27 August 2010 respectively.
The requisite instructions for the transfer of funds for first two remittances were given by BCCI to their bank on 28 March 2009, which was prior to the signing of the agreement with CSA. Similarly, the last two remittances were made after the conclusion of the tournament, out of which, the last remittance of US $ 1,03,62,799.42 was effected, as late as 15 months after the conclusion of the IPL Tournament.
Adjudicating authority has alleged that the BCCI, while seeking the transfer of funds to CSA from their bank, did not furnish any supporting documents to justify the purpose of the remittances sought and made, and even the purposes of these remittances were shown as 'Operational Fee & Cost of hosting IPL'.
The authority, relying on ED investigation, said in the emergent working committee meeting of BCCI held on 22 March 2009, in which, decision was taken to shift the venue of the IPL Tournament to South Africa, it was proposed by the then BCCI President that a separate bank account could be opened in South Africa by BCCI, for the purpose of the conduct of IPL 2009, after obtaining the necessary approval from RBI.
“However, no efforts were made by BCCI or its concerned officials/office bearers to approach RBI to obtain any such permission and instead, BCCI had entered into an agreement with CSA, in which, it was stated that CSA would open a dedicated bank account for the sole purpose of crediting the amount received by CSA directly from BCCI. Various conditions stipulated in the agreement further ensured that this dedicated bank account, though opened by CSA in South Africa, would be controlled by BCCI only. Thus, a convenient a platform for banking transaction was created by BCCI with the help of CSA to bypass the exchange control requirement of securing permission from RBI before opening a foreign currency account in their own name abroad," the adjudicating authority had alleged while imposing the penalty.
The authority has argued that expenditure incurred in South Africa falls under the category of 'Capital Account Transaction' which requires specific permission from the RBI. Adjudicating Authority has further mentioned that charges against Lalit Modi, then chairman of IPL, N Srinivasan, then Secretary of BCCI and MP Pandove, then treasurer BCCI, were also established.
The ED had claimed all the forms related to transfer of funds to CSA were signed by Pandove and he did not furnish any documentary proof to the bank to confirm specific purposes for which the remittances were sought to be made to CSA.
Pointing out loopholes, the show-cause notice said, "In respect of the last remittance of US$ 1,03,62,799.42 made on 27 August 2010, the purpose of remittance was shown as 'Operational Fee & Cost of hosting IPL 2009' in the A-2 form, whereas, the transfer instruction and also the SWIFT message for the said transfer had shown the purpose as “Towards balance and final payment of expenses in IPL-2009”. Thus, there was an apparent contradiction in the purpose of remittance shown in different documents, for the same remittance.”
The ED had charged the bank for not securing adequate information and supporting documents from BCCI to ensure that these transactions did not involve or it was not designed for the purpose of any contravention or evasion of the provisions of FEMA 1999. The then chief manager of the bank was also charged u/s 42(1) of FEMA 1999.
BCCI, in its appeal filed in the Tribunal against the adjudication order, claimed that transfer of funds to CSA does not violate FEMA. It further said that adjudicating authority has failed to appreciate that transactions which are carried out by an entity in the regular course of its business are Current Account Transactions, and such remittance are permissible under FEMA.
Srinivasan, in his appeal seeking a waiver of pre-deposit, has claimed that section 42(1) of the FEMA cannot be invoked in case of BCCI as it does not fall within the definition of company and hence the provisions of vicarious liability prescribed in the relevant section are not applicable against him.
Pandove, in his appeal seeking a waiver, has claimed that he was not provided with an opportunity to inspect or access key documents by adjudicating authority to defend himself. Pandove said adjudication order does not contain any logical, factual or legal basis for arriving at such an excessive penalty amount and does not ascribe any contumacious and dishonest conduct.
He further argued that adjudication order does not suggest that he personally profited from the alleged contraventions which were, at the highest, merely technical in nature. He also prayed before the tribunal that Rs.9.72 Crores levied on him is excessive and he does not have the economic wherewithal to deposit such a sum of penalty.
Lalit Modi, seeking waiver of pre-deposit, has argued before the tribunal that as per the definition in the BCCI rules and regulation, office bearers of the board mean the President, Secretary, Joint Secretary and Treasurer. Neither the Vice President nor the Chairman of IPL is an office bearer of BCCI.
"The appellant (Lalit Modi) was neither an office bearer of the BCCI nor part of the working committee of BCCI, thus, there is no question of appellant being responsible to the BCCI for the conduct of the business of the BCCI. Therefore, the appellant cannot also be said to be in charge of the business of the BCCI.
"The witnesses examined during cross-examination had interalia admitted that: firstly, Appellant was not an office bearer of BCCI and was not responsible for the financial affairs of the BCCI, this is obvious from the record of cross-examination of Mr Shashank Manohar, Mr Ratnakar Shetty, Mr Chirayu Amin, and Mr MP Pandove; secondly, concerned official of the Bank i.e the Authorised Dealer had stated in so many words that all the remittances were made after the same were approved by the foreign exchange department of the bank and the same were permissible remittances, and therefore there was no infraction of FEMA.....the bank has specifically argued that all foreign exchange remittances are reported by the bank to the RBI and the RBI had never flagged any remittances. This fact, in itself, establishes that there was no infraction of FEMA. Modi has also argued that shifting of venue to South Africa was decided by Shashank Manohar which he has admitted during the cross-examination and all remittances were Current Account Transactions permissible under FEMA. Modi also claimed that the RBI had not pointed out any such infraction and was of the opinion otherwise, the communications of the RBI were suppressed and request to cross-examine the concerned officer of the RBI was rejected without assigning any reason.”
“As far as the individual notices are concerned, it was alleged that if Mr Shashank Manohar has been exonerated of all liability, is it possible to impose any vicarious liability on any other individual notices? It is an undisputed factual position that the working committee of the BCCI in its meeting dated 22nd March 2009 took the decision to hold IPL – 2 outside India, the working committee left it to Mr Shashank Manohar to decide the venue and Mr Srinivasan was required to draft an appropriate resolution regarding the opening of Bank account. Mr Shashank Manohar in his cross-examination admits that he had decided the venue of South Africa for IPL – 2. It is clear from the email dated 24/03/2009 issued by Mr Srinivasan the method of account operation in South Africa was decided by Mr N Srinivasan and Shashank Manohar," Lalit Modi said in his appeal before the Tribunal.
The State Bank has also argued that each of all the remittances of foreign exchange legally effected by it was reported to the RBI and there is not even a single instance when the RBI raised any objection or pointed out any irregularity committed by the Bank.
The ED has countered the claim saying fund transferred by BCCI to the CSA Account was in the nature of ‘Capital Account Transaction’ and hence, these transactions required specific permission of RBI.
Tribunal said: " Without prejudice, BCCI is directed to deposit Rs 10 crores against total penalty amount imposed with the respondent by way of Bank Guarantee on its behalf as well as on behalf of appellant nos 2 to 9 (N Srinivasan, MP Pandove and Lalit Modi) within four weeks.”
The tribunal further said the ED has made many allegations of malpractices but the cases are not decided on the basis of the allegation. In the final order, the matters are to be decided on the basis of fact, evidence and legal issues on record.