ED Files FEMA Case Against BBC: What This Means & What Next For The Media House

Why is the ED investigating the BBC now? What penalties might it have to pay for this? What next? We answer.

(Photo: Wikimedia Commons)

In fresh trouble for the BBC, the Enforcement Directorate (ED) has now filed a case against the broadcaster under the Foreign Exchange Management Act, 1999 (FEMA).

Previously: Weeks after the media house aired a documentary criticising the role of then Gujarat CM Narendra Modi in the 2002 Gujarat riots, its offices in Delhi and Mumbai were ‘surveyed’ by the Income Tax Department in February.

So, why is the Enforcement Directorate investigating the broadcaster now? What penalties might it have to pay for this? And what happens after this?

The Case(s) Against BBC

Currently, the Enforcement Directorate is looking at alleged foreign direct investment (FDI) violations by the media house under the Foreign Exchange Management Act (FEMA).

Put very simply, FEMA is a law that controls the flow of foreign currency across Indian borders. The government brought in the FEMA in 1999 to replace the erstwhile, more stringent Foreign Exchange Regulations Act (FERA), under which those accused could be sent to jail.

Though the Reserve Bank of India (RBI), is the overall controlling authority under the act, the responsibility for its enforcement lies with the ED.

While the case against BBC was registered two weeks ago, the central agency has so far questioned six employees from the company, asked executives to record their statements and has called for relevant documents, news agency PTI reported.

Previously, at the time of the ‘survey’ in February, the I-T department had pulled up the media house for  “non-compliance with transfer pricing rules." 

Even then, tax experts had pointed out that a ‘survey’ involving search and seizure was unnecessary for transfer pricing rule violations. To know more about what transfer pricing rules are and why experts had questioned the I-T department’s move, read this piece.

ED Alleges FDI Violation - What Does This Mean?

Foreign Direct Investment (FDI) regulations come into the picture when a company is receiving investments from outside the country.

According to what Advocate Ishan Khanna, who specialises in white-collar criminal litigation, told The Quint, a foreign investment is considered to be in violation of the law if:

• It is not permitted under FDI regulations

• Or it Is permitted but has been received without taking requisite approvals

  So far, the exact provisions the BBC is alleged to have violated are unclear.

What Is The Penalty For FDI Violations?

While such violation under the previous law (FERA) that governed foreign exchange could lead to imprisonment,  violation of the current law is punishable only through fines.

According to Delhi-based lawyer Vaibhaw Kumar, who specialises in ED cases, there are three kinds of fines applicable under the law (Section 13):

1) If the violation is ‘quantifiable’ i.e. there is a specific amount that has been tampered with, the fine can go up to three times the amount in question

For instance, if a company has been charged with violating a rule under the act which amounts to Rs 1000, then the fine can go up to Rs 3,000

2) If the violations are ‘non-quantifiable’ i.e. something to which an amount can’t be attached to (like incorrect paperwork) then the fine can be a maximum of Rs 2 lakhs

3) If  the violation is a continuing one i.e the company has been notified of the violation and and they are not complying with or correcting the violation, then the defendant (the BBC in this case) can be liable to pay a further penalty which may extend to Rs 5,000 for every day since the date of notification of the violation

What Next for BBC?

As has been mentioned earlier, the ED is currently bringing in executives for recording their statements and collecting necessary documents.  After this is done, there is a three-step process that will kick in, Kumar explained to The Quint:

• The ED will issue a show cause notice. A show cause notice signals the conclusion of investigation in the case

• Following this, the case will then be transferred to an adjudicating authority, where the BBC will get to cross-examine the people or witnesses whose statements have been recorded 

• And then, based on the violations cited by the ED, a fine will be calculated and  imposed

• Meanwhile, if the broadcaster seems to think that the violations alleged by the ED are not true, then it can also challenge the initiation of the proceedings in the High Courts or Supreme Court