FEMA pre-deposit requirements may be modified to balance penalty realization against established undue financial hardship.

The petitioners challenged an order dated 01.07.2025 passed by the Appellate Tribunal, SAFEMA, which partially allowed their applications for waiver of pre-deposit of penalties imposed under the Foreign Exchange Management Act, 1999 ("FEMA")

The Adjudicating Authority had imposed penalties ranging from Rs. 42,00,000 to Rs. 74,00,000 for contravention of Section 3(d) of FEMA involving illegal outward remittances

The Appellate Tribunal directed the petitioners to deposit 10% of the penalty amount as a condition for hearing the appeal

The petitioners sought a total waiver, claiming they were victims of fraud, faced financial crisis, and possessed a strong prima facie case

1. Whether the Appellate Tribunal properly exercised its discretion under the second proviso to Section 19 of FEMA in requiring a 10% pre-deposit

2. Whether the petitioners established "undue hardship" and a prima facie case sufficient to warrant a complete waiver of the pre-deposit

Section 19 of the FEMA Act, 1999, which mandates that any person appealing a penalty must deposit the amount with the notified authority, provided that the Appellate Tribunal may dispense with such deposit if it causes "undue hardship," subject to conditions it deems fit

The principles of judicial review under Article 227 of the Constitution, noting that the High Court does not act as a Court of Appeal over specialized tribunals and should only intervene if the order is perverse or unreasonable

The Court observed that under Section 19, pre-deposit is the rule and relaxation is the exception

The Tribunal had already exercised its discretion by granting a 90% waiver, requiring only a 10% deposit

Regarding the prima facie case, the Court noted the Adjudicating Authority's finding that the petitioners were aware the transactions were for outward remittances in the guise of imports and had accepted commissions for providing signed blank cheques and bank credentials

The Court found the petitioners’ reliance on Nimesh Suchde v. UOI and Priya Shah v. ED misplaced, as those cases involved a total dismissal of waiver applications or orders that were prima facie unsustainable

The Court concluded that the Tribunal’s order was not perverse or unreasonable; however, it opted to slightly modify the terms to balance the interests of justice

It directed the petitioners to pre-deposit 5% of the penalty amount in cash and, for the remaining 5%, to provide either a bank guarantee or a surety to the satisfaction of the Appellate Tribunal

The petitions were disposed of with the clarification that the merits of the case remain subject to the Tribunal's final adjudication