Bombay High Court Affirms Tribunal's Decision To Reduce Penalty On Jaipur IPL Cricket

Bombay High Court Affirms Tribunal's Decision To Reduce Penalty On Jaipur IPL Cricket

The Mumbai Zonal Office of the ED had initiated inquiries into irregularities in the Indian Premier League organized by the BCCI

The Bombay High Court has held that the Special Director of the Directorate of Enforcement (ED) failed to apply the doctrine of proportionality in a case involving Jaipur IPL Cricket Pvt Ltd.

The bench comprising Justice K.R. Shriram and Justice Neela Gokhale affirmed the decision of the appellate tribunal for the Smugglers and Foreign Exchange Manipulators-Forfeiture of Property (SAFEMA) Act, the Foreign Exchange Management Act (FEMA), the Narcotic Drugs and Psychotropic Substances (NDPS) Act, the Prevention of Money Laundering Act (PMLA), and the Prohibition of Benami Property Transactions (PBPT) Act, to reduce the total penalty imposed on Jaipur IPL Cricket from Rs.98.35 crores to Rs.15 crores.

The court noted that the Special Director had failed to provide any justification regarding the basis for imposing the maximum penalty, particularly considering the alleged acts attributed to everyone. However, after a thorough examination of the relevant documents, the tribunal reduced the penalty.

The judges stated, “The Special Director has completely failed to apply the doctrine of proportionality as interpreted and elucidated by the apex court in its various decisions while choosing to impose maximum penalty on the respondents. Having gone through the impugned order, the court does not find anything perverse in the findings, reasoning, and conclusion of the tribunal.”

The case pertained to the inquiries initiated by the Mumbai Zonal Office of the Enforcement Directorate (ED) into irregularities in the Indian Premier League (IPL) organized by the Board of Control for Cricket in India (BCCI).

The investigation uncovered irregularities in the ownership allotment process of IPL teams, especially the deposits made during the bidding process by Jaipur IPL Cricket and its directors and promoters (respondents). The deposits were found to contravene various FEMA provisions and regulations.

Thereafter, appeals were filed under Section 35 of FEMA, challenging an order of the tribunal, which had modified the decision by the Special Director. The tribunal reduced the total penalty on the appellants from Rs.98.35 crores to Rs.15 crores.

The bench deliberated upon whether the tribunal's interference with the Special Director's order was justified, and the evaluation was based on the doctrine of proportionality.

The judges observed that while acknowledging the contravention of FEMA provisions, the Special Director's order lacked an explanation for imposing the maximum penalty. He determined the penalty by tripling the sum involved in the contravention, as alleged by the ED's Investigating Officer, under Section 13(1A) of FEMA.

In contrast, the tribunal scrutinized each charge and found that an excessive penalty was imposed on individuals without specifying their roles. Thus, proving an individual's role, particularly in day-to-day management, was the department's responsibility. It noted the department’s failure to fulfill this burden.

On the other hand, the Special Director justified the penalty by repeating FEMA provisions without discussing the specific actions.

The tribunal emphasized that imposing the maximum penalty required demonstrating the person's responsibility for the company's functioning, being in charge, and having a motive to benefit from the transaction.

The bench stated that the tribunal found a lack of malicious intent and guilt on the part of the respondents. It criticized the Special Director for not discussing the specific roles of individual respondents to justify invoking FEMA provisions and imposing the maximum penalty.

The court held that the tribunal had observed that no loss was caused to the exchequer. The remittances entered and stayed in India and no foreign exchange went out of the country. The remittances were utilized for their intended purposes, with no allegation of misuse for extraneous purposes. The entities involved did not benefit and suffered significant financial detriment, as shares with beneficial transferable interest were not issued against the remittances for the past 11 years.

Justice Shriram and Justice Gokhale noted that the Rajasthan Royals franchise had participated in the IPL since 2008 without any other allegations of contravening FEMA provisions or related regulations. The tribunal had meticulously examined all pertinent facts to reach a decision and the findings were not perverse.

Thus, the bench, while dismissing the appeal, affirmed the tribunal’s judgment.