Enforcement Directorate serves Rs.8,600-cr penalty notice on Emaar MGF
Construction giant Emaar MGF Land Limited has been served a show-cause notice by the Enforcement Directorate for alleged breach of the Foreign Exchange Management Act (FEMA) worth about Rs.8,600 crore by false representation on utilization of Foreign Direct Investment (FDI).
What is the violation?
The RBI provides this FDI scheme facility to Indian companies under an automatic route to receive funds from abroad for a number of business activities, including construction development projects. The companies receiving funds have to disclose the purpose — from the list of permitted activities by RBI — for which the FDI had been received.
As per allegations, the Emaar company which received funds from its four subsidiaries from Dubai, Cyprus, Mauritius and other foreign countries under the FDI scheme gave false information about the use of those funds as it stated the funds were used in construction project but it allegedly utilized the overseas funds in the purchase of agricultural land and other plots in India. This use of overseas funds was not disclosed to the RBI nor was it permitted under the FDI scheme. The ED has found Emaar MGF and its four subsidiaries guilty of contravention of Section 6(3)(b) of the FEMA Act, for a total amount of about Rs.8,600 crore.
It is possible that the penalty proceedings against these violations would also be undertaken which could take up the total penalty amount to Rs.25,000 crore, which is 300% of the violations detected.
Foreign Exchange Management Act (FEMA):
- Passed in 1999
- Objective: To replace FERA (Foreign Exchange Regulations Act), 1973 which had become incompatible after economic reforms and pro-liberalization policies of the Government of India.
- Seeks to make offenses related to foreign exchange civil offenses.
- Allows only the authorized people to deal with foreign security or foreign exchange.
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Month: Current Affairs - June, 2013