In a significant order, the adjudicating authority in the Directorate of Enforcement has refused to confiscate the shares allotted to A. Jawahar Palaniappan in Kumudam Publications Pvt. Ltd.
Mr. Palaniappan is the son of Kumudam Publications’ founder S.A.P. Annamalai.
Kumudam Publications Pvt. Ltd. is an amalgamated entity that came into being following the merger of Kumudam Publications Ltd. and Kumudam Printers Pvt. Ltd. in1999-2000.
Mr. Palaniappan was allotted 3,32,640 shares in the amalgamated entity based on shares held by him in the two merged companies. Subsequently, a dispute ensued that saw P. Varadarajan, chairman and managing director of erstwhile Kumudam Publications Pvt. Ltd., questioning the allotment of shares to Mr. Palaniappan, a non-resident Indian who became a citizen of the U.S., in a print media venture.
It was alleged that the share allotment to Mr. Palaniappan contravened provisions of the Foreign Exchange Management Act (FEMA).
After hearing both sides, joint director Girish Bali, who is the adjudicating authority in the Directorate of Enforcement, declined to confiscate the shares allotted to Mr. Palaniappan.
“The onus, to adhere to the provisions of rules and regulations of an existing law (FEMA 1999 in this case), while issuing shares of the amalgamated company to non-resident holders, lied on the company issuing such shares and not on the individual shareholders,” he said in his order. He also refused to confiscate the money representing the annulled shares (worth ₹2.57 crore).
The latest order in this dispute must be read in tandem with the RBI position in the case.
In December 2014, Kumudam Publications, then under the stewardship of Mr. Varadarajan, had written to the RBI alleging contravention of FEMA rules relating to shares held by Mr. Palaniappan.
“In our opinion, the shareholding of Shri A.J. Palaniappan in your company does not contravene any provision of FEMA 1999 or any of the Regulations framed there-under,” the RBI had said in its response dated June 15, 2015.
The RBI observed that the entire shareholding of Mr. Palaniappan in Kumudam Publications Private Ltd, was held on a non-repatriation basis and that he had not purchased any of the shares so held in the company. “Hence, in our view, the same cannot be reckoned as FDI as per the extant provisions of FEMA, 1999 and Regulations made there-under,” the apex bank had said.
