IPL 2009 FEMA Case: Lalit Modi, BCCI Get Major Relief As Tribunal Quashes ED Penalties

The Board of Control for Cricket in India (BCCI) and former Indian Premier League (IPL) chairman Lalit Modi have received major relief in the 2009 IPL South Africa hosting case, with the Appellate Tribunal under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act (SAFEMA) overturning key findings of the Enforcement Directorate (ED).

The tribunal has set aside the penalty order imposed by the ED in a 15-year-old Foreign Exchange Management Act (FEMA) case linked to the second season of the IPL, which was shifted from India to South Africa due to security concerns during the 2009 general elections.

The order was delivered on July 16 and provided relief not only to Modi but also to the BCCI and former office-bearers, including then secretary N Srinivasan and treasurer MP Pandove. The tribunal either cancelled or reduced several penalties imposed by the ED in 2018.

The ED had initiated proceedings after alleging that the BCCI violated FEMA regulations by transferring foreign exchange worth INR 243.45 crore to South Africa without prior approval from the Reserve Bank of India (RBI). Show-cause notices were issued in 2011, followed by penalty orders in 2018.

Tribunal Rejects ED’s Core Argument

The tribunal rejected the ED’s argument that the overseas payments made for IPL 2009 amounted to capital account transactions requiring RBI approval. It held that the remittances were related to current account transactions.

Lalit Modi, in a statement issued from London on Tuesday, welcomed the verdict and said the tribunal had rejected the foundation of the ED’s case against him.

“The tribunal has rejected the central premise on which the Enforcement Directorate’s case against me had been built. It held that the principal foreign remittances relating to the staging of IPL 2009 in South Africa were Current Account transactions, not Capital Account transactions, thereby overturning the foundation of the earlier findings.”

“Current Account transactions of this nature do not require the RBI’s approval.”

Modi added that the tribunal also ruled that he was not responsible for BCCI’s FEMA compliance obligations.

“The tribunal also found that I was neither responsible for BCCI’s statutory FEMA compliance nor vested with the financial authority alleged by the Enforcement Directorate, and it has set aside the penalties imposed on me in the principal proceedings. This marks the conclusion of what has been the single most significant legal matter arising from the 2009 South Africa IPL.”

Tribunal Clears Lalit Modi Of Penalty

The tribunal described Modi as the “chief architect behind the organization and conduct of IPL-2 in South Africa” while setting aside the penalty imposed on him.

“It is an admitted position that the very concept of the Indian Premier League was the brainchild of the Appellant,” the tribunal observed.

The order stated that Modi could not be held responsible for BCCI’s regulatory obligations, noting that he was not handling the Board’s affairs in the capacity alleged by the ED.

“The penalty has been imposed even on Shri Lalit Kumar Modi in ignorance of his position and even suspension. He was not in-charge of the affairs and otherwise he has been framed in the case without any material showing his responsibility. The penalty imposed on Shri Lalit Kumar Modi is wholly erroneous and thus interfered,” the judgment said.

Modi said he had maintained throughout the proceedings that his actions were taken in the interest of Indian cricket and the IPL.

“The Tribunal has rejected the central premise on which the Enforcement Directorate’s case against me had been built. It held that the principal foreign remittances relating to the staging of IPL 2009 in South Africa were current account transactions, not capital account transactions, thereby overturning the foundation of the earlier findings.”

“The Tribunal also found that I was neither responsible for BCCI’s statutory FEMA compliance nor vested with the financial authority alleged by the Enforcement Directorate, and it has set aside the penalties imposed on me in the principal proceedings."

"This marks the conclusion of what has been the single most significant legal matter arising from the 2009 South Africa IPL. For over sixteen years I have consistently maintained one simple position: I acted in good faith, in the best interests of Indian cricket and the IPL, and committed no personal wrongdoing.”

IPL 2009 Shift To South Africa

The second edition of the IPL was moved to South Africa after the Indian government expressed concerns over providing security during the general elections in 2009.

Reflecting on the decision, Modi said the move was necessary under challenging circumstances.

“The decision to move the tournament to South Africa in 2009 was taken under extraordinary circumstances when India’s general elections made it impossible to host the tournament at home. The successful staging of that season ensured that the IPL survived and ultimately became one of the world’s most valuable sporting properties.”

Penalties Reduced For BCCI Officials

The tribunal also provided relief to former BCCI officials N Srinivasan and MP Pandove by reducing penalties in one set of proceedings.

The penalty imposed on Srinivasan was reduced from INR 1 crore to INR 10 lakh, while Pandove’s penalty was brought down from INR 50 lakh to INR 5 lakh. The penalty against the BCCI was reduced from INR 4 crore to INR 1 crore.

However, in another matter involving penalties of INR 50 lakh each against Srinivasan and Pandove, the tribunal decided not to interfere.

“They were found to be in-charge and responsible to conduct business of the BCCI in the capacity of the secretary and the treasurer. We do not find any illegality in imposing the penalty on them in pursuance to the show cause notice (XIII) rather (IV) and to that extent, the impugned order is not interfered.”

Tribunal Says Payments Did Not Alter Assets Or Liabilities

The case centred around the transfer of USD 49.86 million, equivalent to INR 243.45 crore, from India to South Africa for conducting IPL 2009.

The ED had alleged that the transaction violated FEMA provisions as the remittance was made without RBI approval. BCCI and its officials argued that any regulatory lapse, if applicable, was due to a lack of understanding of the requirements and not because of any deliberate wrongdoing.

Rejecting the ED’s interpretation, the tribunal said the payments made for services during the tournament could not be classified as capital account transactions.

“We have considered the submissions… and find that if, in a given case, the payment towards the service was made from time to time and that too without budgeting, then, according to the respondent (ED), it would fall in the definition of ‘Capital Account Transaction’. We are unable to accept the argument advanced by the respondent (ED).”

The tribunal further stated, “It is for the reason that the definition of ‘Capital Account Transaction’ under Section 2(e) of the Act of 1999 covers all transactions which alters the assets or liabilities, including contingent liabilities, outside India. The transaction involved in the present matter does not fall within the definition of ‘Capital Account Transaction’ because it has not altered the assets or liabilities of the person resident in India which includes even the contingent liability.”

The SAFEMA Appellate Tribunal bench comprising Chairman Justice Munishwar Nath Bhandari and Member Rajesh Malhotra partly allowed the appeals against the ED’s May 31, 2018 order.

The original ED order had imposed penalties on the BCCI, Lalit Modi, N Srinivasan, MP Pandove, the State Bank of India and former SBI Chief Manager A.K. Nazeer Khan for alleged FEMA violations linked to the overseas conduct of IPL 2009.