Case Note & Summary
The appeals were filed under the Foreign Exchange Management Act, 2000 and Foreign Exchange Regulation Act, 1973 against the order of the Appellate Tribunal for Foreign Exchange which had upheld penalties imposed for non-realisation of export proceeds. The appellant firm had exported ready-made garments to a German buyer, but following the buyer's bankruptcy, a substantial amount remained unpaid. The firm took steps including contacting the Indian embassy, lodging claims with the liquidator, and seeking write-off permission from the Reserve Bank of India. However, the Enforcement Directorate issued a show cause notice alleging contravention of Section 18(2) of FERA, and the Adjudicating Authority imposed a penalty of Rs. 8,00,000 on the firm and Rs. 60,000 on each partner, holding that the appellants failed to rebut the presumption under Section 18(3) that they did not take all reasonable steps. The Tribunal dismissed the appeals, finding that the firm continued exports despite defaults, provided insufficient evidence of recovery efforts, and approached RBI after an inordinate delay. The High Court admitted the appeals and framed questions of law. At the time the judgment text ends, the Court had heard counsel and perused the record but had not yet pronounced its decision on the merits or the relief sought.
Issue of Consideration
Whether every non-realisation of export proceeds tantamounts to violation of Section 18(2) of FERA; Whether failure to aver necessary ingredients of Section 18(2) in the show cause notice vitiates it; Whether the actions of the firm were sufficient to constitute reasonable steps under Section 18(2) FERA; Whether pendency of application for write-off before RBI precludes issuance of show cause notice
Law Points
- non-realisation of export proceeds does not automatically constitute contravention of section 18(2) FERA
- presumption of contravention under section 18(3) FERA is rebuttable
- exporter must take all reasonable steps to recover or receive payments
- burden on exporter to rebut presumption
- penalty under section 50 FERA for contravention
Case Details
2012 LawText (BOM) (09) 81
FERA Appeal Nos. 56, 57, 58, 59, 60, 61 of 2009
J.P. Devadhar, R.D. Dhanuka
Ms. Mili Thakkar with Mrs. S.V. Thakkar for the Appellants; Mr. P.S. Jetly with Mr. M.S. Bhardwaj for respondents
M/s. Overseas Textiles Corporation, Ramniklal M. Doshi, Jayesh V. Bhagwati, Varsha R. Doshi, Prakash K. Bhagwati, Atul K. Bhagwati
Special Director, Enforcement Directorate and another
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Nature of Litigation
Appeals against penalty imposed for alleged contravention of FERA due to non-realisation of export proceeds
Remedy Sought
Appellants sought to set aside the tribunal's order upholding the penalty and to be exonerated from the charges
Filing Reason
The firm and its partners were penalized for failing to take all reasonable steps to receive or recover payments for exported goods, leading to non-realisation, which was presumed to be a contravention under section 18(2) FERA
Previous Decisions
Additional Director/Adjudicating Authority imposed penalty of Rs. 8,00,000 on the firm and Rs. 60,000 on each partner on 23 November 1999; Appellate Tribunal for Foreign Exchange dismissed the appeals on 30 April 2009
Issues
Whether every non-realisation of export proceeds automatically constitutes violation of Section 18(2) of FERA
Whether the show cause notice was defective for failing to aver the necessary ingredients of Section 18(2)
Whether the actions taken by the firm were sufficient to constitute 'all reasonable steps' under Section 18(2) FERA
Whether the pendency of the firm's application for write-off of unpaid bills before the RBI precluded the issuance of the show cause notice
Submissions/Arguments
Appellants argued that every non-realisation does not tantamount to a violation and that the department did not plead necessary ingredients in the show cause notice
Appellants contended they had taken reasonable steps by contacting the Indian embassy, filing claims with the liquidator, and applying for write-off permission from RBI
Appellants submitted that the RBI was considering their write-off application and thus the proceedings were premature
Respondents maintained that the appellants failed to rebut the statutory presumption under Section 18(3) FERA as no documentary evidence of recovery efforts was provided, exports continued despite defaults, and the approach to RBI was belated
Judgment Excerpts
the appellants did not take all reasonable steps to receive or recover the payments for the exported goods and therefore, shall be presumed to have contravened the provisions of sub section (2) of section 18 of FERA
Whether every non realization of export proceeds tantamount to a violation of S.18(2) of FERA?
there was no documentary evidence adduced or produced by the firm and therefore, he had reason to presume in terms of section 18(3) of the FERA that the noticees did not take all reasonable steps
Procedural History
On 23 December 1999, show cause notice was issued alleging contravention of section 18(2) FERA. By order in original dated 23 November 1999, the Adjudicating Authority imposed penalties. Appellants preferred appeal (No.1222/2004) before the Appellate Tribunal for Foreign Exchange, which directed pre-deposit of 35% of penalty. On 30 April 2009, the Tribunal dismissed the appeals. The present FERA appeals were filed before the High Court and were admitted on 10 September 2009.
Acts & Sections
- Foreign Exchange Regulation Act, 1973: 18(2), 18(3), 40, 50, 54
- Foreign Exchange Management Act, 2000: 35
