Upgrad LLM

fema - deciding the amount of contravention


I am giving a hypothetical case details...please advise the FEMA stand on the issue.

An Indian resident has created a trust abroad with himself as beneficiary (allowed by the foreign jurisdiction) & settled 2000 US$ on himself (plus the trust creation expenses of 1000 US$) and the trust has invested the 2000 US$ amount in creating a company abroad with 2000$ capital and the company is controlled by the trust beneficiary as a Director & Bank Signatory (also permitted by the foreign jurisdiction law).

Now this company is engaged in International Trade and buying goods from the person's Indian proprietorship firm. Till date the foreign firm has bought 50000 USD worth of goods from the the Director's own company in India, 10000 USD worth of goods from another company in India and 15000 USD worth of goods from a third country and had a profit of 3000 USD.

What is at dispute is the amount of contravention. One view is submitting that the amount of contravention is 3000 USD...the amount settled on the trust & trust creation expenses (2000+1000). Another view is adding the turnover of the company 75000 USD & profit of 3000 USD to the amount of contravention, as that view is not accepting the person's submission that only the trust was formed illegally without permission of RBI and that the person worked as a Director of the Company legally and had a salary from the company to work as a Director in the Company and declared that Salary to the Income Tax authorities in India and paid tax on it.

Please advise what is the FEMA stand on it, according to you. Hope this generates a good discussion.

With best regards.
Sanjay Arora.



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