BCCI’s recent remittance of INR 1600 crore to Cricket of Australia (CA) and Cricket of South Africa (CSA) pursuant to an agreement with CA and CSA for the Champions League T20 is in the eye of Enforcement Directorate (ED).
As per media reports, ED has contended that BCCI was required to obtain approval of Reserve Bank of India prior to the remittance of funds to CA and CSA as the said transaction falls under the ambit of capital account transactions as per the Foreign Exchange Management Act, 1999 (FEMA). However, the BCCI has taken a stand that the payments were bonafide and legitimate and paid in accordance with agreement entered as per well-established practice of International Cricket Council (ICC) and falls under the ambit of current account transactions of FEMA, therefore does not require RBI approval. As per statement of BCCI, said payments were made to players towards their fees and to the CA and CS, towards profit sharing.
In order to understand the transaction undertaken, we shall first understand what is current account transactions and capital account transactions keeping in view the disclosed facts of the remittance made by BCCI to overseas association and FEMA Law.
Capital Account Transactions is a transaction which alters or changes the assets or liabilities outside India of a person resident in India or assets or liabilities in India of a person resident outside India such as investment in foreign securities, transfer of immovable property, remittance of capital assets, loans and overdrafts to person resident outside India, etc.
On the other current account transaction is a transaction other than a capital account transaction including payment due in connection with foreign trade, other current business, services and short term banking and credit facilities in the ordinary course of business; payments due as interest on loans and as net income from investments; remittances for living expenses of parents, spouse and children residing abroad and expenses in connection with foreign travel, education and medical care of parents, spouse and children. Further, it shall be noted that all capital account transactions requires RBI approval unless specifically permitted whereas all the current account transactions are free from restrictions, unless specifically restricted.
BCCI had treated the said remittance to the overseas association a current account transaction and accordingly had not obtained prior RBI approval. The said stand of BCCI can be sustained, if such payments are made in normal course as part of availing any services.
However, if the transaction comes under the ambit of capital account transactions after lifting of veil from other facts, BCCI would have to seek post facto approval from RBI for the earlier remittance(s) in accordance to the provisions of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. RBI may also direct BCCI to compound the aforesaid default by filing a compounding application in accordance with the provisions of Foreign Exchange (Compounding Proceedings) Rules, 2000. The liability for such a default may extend to thrice the sum involved.