Supreme Court Clarifies Penalty Imposition under FT Act: Rehabilitation Scheme's Scope Examined Interpreting Section 11(2) and SICA Provisions

Case Note & Summary

Foreign Trade (Development and Regulation) Act, 1992 - Imposition of penalty for non-fulfillment of export obligation under an Export Promotion Capital Goods Licence - Interpretation of Section 11(2) of the FT Act - Effect of rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985.

Introduction

The appellant filed a Writ Petition challenging the imposition of a penalty under Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 (FT Act), which was dismissed by the Karnataka High Court. A subsequent Writ Appeal against the High Court's order was also dismissed.

Factual Aspect

Background of Karnataka Malladi Biotics Limited (formerly Emmellen Biotech Pharmaceuticals Limited) obtaining an Export Promotion Capital Goods Licence (licence) enabling concessional customs duty for importing capital equipment. Failure to fulfill export obligations led to a demand notice and subsequent penalty imposition by the Commissioner of Customs. Rehabilitation scheme sanctioned under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) provided for a waiver of customs duty but not penalty.

Submissions

Appellant's counsel argued that the rehabilitation scheme's duty waiver precluded penalty imposition and that the withdrawal of the earlier Writ Petition reserved liberty to file a fresh one. Respondents contended that contravention of licence terms justified penalty imposition.

Consideration of Submissions

Court noted that the withdrawal of the first Writ Petition explicitly reserved liberty to file a fresh one, contrary to lower court findings. Rehabilitation scheme waived only customs duty, not penalty, as evidenced in the Order-in-Original. Interpretation of Section 11(2) of the FT Act required strict construction; no allegation of export/import contravention under this section. Court set aside lower court judgments/orders and the penalty imposition.

Conclusion

The appeal was allowed, and no costs were ordered.