Section 19 FEMA pre-deposit may be modified to balance undue hardship against penalty realization interests.

The petitioners challenged an order dated 01.07.2025 passed by the Appellate Tribunal, SAFEMA, which partially allowed their applications for a waiver of pre-deposit of penalty amounts

The Adjudicating Authority had previously imposed penalties of ₹42,00,000, ₹72,00,000, and ₹74,00,000 on the three petitioners respectively for contravening Section 3(d) of the Foreign Exchange Management Act (FEMA), 1999

The Appellate Tribunal directed a pre-deposit of 10% of the penalty amounts as a condition for hearing the appeals

The petitioners contended they had a prima facie case as victims of fraud by third parties and claimed financial hardship due to business closure

Conversely, the Enforcement Directorate (ED) relied on the petitioners' voluntary statements admitting they facilitated outward remittances for commission despite knowing the nature of the transactions

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

2. Whether the petitioners established a prima facie case and "undue hardship" sufficient to warrant a 100% waiver of the pre-deposit.

3. Whether the High Court, under Article 227 of the Constitution, should interfere with the discretionary findings of the specialized Appellate Tribunal.

The court primarily applied Section 19 of the FEMA, 1999, which mandates a pre-deposit of the penalty amount for filing an appeal, while the second proviso grants the Appellate Tribunal discretion to dispense with such deposit in cases of "undue hardship" subject to safeguarding conditions

The court also considered Regulation 6(1) of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000, regarding unauthorized remittances

Procedurally, the court applied the restrictive principles of judicial review under Article 227 of the Constitution, emphasizing that the High Court does not act as a Court of Appeal over specialized tribunals

It distinguished Nimesh Suchde v. Union of India and Priya Shah v. Enforcement Directorate, noting they apply only where the underlying order is prima facie unsustainable

The court observed that under Section 19 of FEMA, pre-deposit is the rule and waiver is the exception

In evaluating the prima facie case, the court noted that the petitioners’ voluntary statements indicated they were aware the funds were being remitted abroad under the guise of imports and had accepted commissions for providing signed blank cheques and bank credentials

This negated their claim of a strong prima facie case

Regarding "undue hardship," the court found that the Tribunal had already bestowed due consideration by granting a 90% waiver of the penalty amount

The court held that under Article 227, it cannot displace the findings of a specialized tribunal unless they are perverse or unreasonable

It concluded that the Tribunal’s order was neither perverse nor an instance of non-application of mind, especially given that the "bill discounting" defense appeared to be an afterthought to escape legal consequences

The court ordered that the requirement to deposit 10% of the penalty amount be modified to a 5% cash deposit, with the remaining 5% to be covered by a bank guarantee or surety to the satisfaction of the Appellate Tribunal

The petitions were disposed of with the clarification that these observations would not affect the merits of the case during the final adjudication by the Tribunal