https://the420.in/pwc-fema-violation-pmla-tribunal-ed-penalty-reduced-illegal-fdi-grants/

The Appellate Tribunal under the Prevention of Money Laundering Act (PMLA) has upheld key findings of the Enforcement Directorate (ED) against PricewaterhouseCoopers Pvt. Ltd. (PwC) and others for violating the Foreign Exchange Management Act (FEMA), 1999, but has substantially reduced the penalty from ₹230.4 crore to ₹80.5 crore.

The case originated from a 2019 show-cause notice issued by the ED’s Special Director (Eastern Region), following a Supreme Court directive based on a PIL filed by an NGO. The apex court had ordered the ED to investigate PwC’s operations under FEMA for alleged irregularities in foreign fund inflows.

According to the ED, PwC and six associated individuals illegally routed foreign direct investment (FDI) into a non-permitted sector by disguising capital inflows as ‘grants’. The foreign funds in question were remitted from PricewaterhouseCoopers Services BV, a global affiliate of the PwC network. Since PwC operates in audit and consultancy—a sector restricted for FDI without prior approval—such inflows violated FEMA provisions.

Tribunal Upholds ED’s Findings, Reduces Disproportionate Penalty

The ED had alleged violations under Sections 10(6), 6(2), 6(3), and 9(b) of FEMA, citing that PwC accepted foreign remittances without approval from the Reserve Bank of India (RBI). These remittances, which PwC labeled as “grants,” were in reality structured as capital account transactions (CATs)—requiring mandatory compliance with FEMA regulations.

The PMLA Tribunal agreed with the ED’s core findings, affirming that PwC and others used misclassification to bypass regulatory scrutiny, and that the so-called “Network Service Charges” (NSCs) had all the characteristics of disguised dividends linked to equity or capital-based arrangements.

However, the tribunal found the original ₹230 crore penalty “excessive and disproportionate” and revised it to ₹80.5 crore. It also reduced the fines against former PwC executives Shyamal Mukherjee, Deepak Kapoor, and Ramesh Ranjan, and fully waived the penalty imposed on former employee Shivam Dubey, noting that he acted without independent authority, merely executing decisions of his superiors.

Capital Account Misclassification and Procedural Claims Rejected

In its final analysis, the tribunal conducted a clause-by-clause examination of the Grant Agreements (GA-1 and GA-2). It concluded that these agreements included contingent liabilities—conditions that required repayment if not used within specific timeframes. As such, the remittances clearly met the definition of Capital Account Transactions under FEMA Section 2(e).

The argument advanced by PwC—that the transactions did not impact cross-border assets or liabilities—was flatly rejected. The tribunal clarified that FEMA’s interpretation of “capital” must align with statutory guidelines, and cannot be defined to suit corporate convenience.

Additionally, PwC’s claim that the ED had violated procedural rules under Adjudication Rules 4(3) and 4(4) was also dismissed. The tribunal ruled that due process was followed and that no miscarriage of justice occurred during the investigation and adjudication process.

This ruling reinforces the Indian government’s position on foreign investment compliance, particularly in sensitive sectors like auditing and consultancy, and sends a strong signal to multinational corporations about regulatory accountability and transparent financial structuring.