Partly allowed

FPA-FE-25/LKO/2013 of M/s. R & P Exports v/s The Joint Director Directorate of Enforcement, Lucknow

ATFP31 Aug 2017FPA-FE-25/LKO/2013

Case brief

AI extract

What is this about?

Appellate Tribunal set aside penalties imposed on partners of an export firm under FERA, holding that a 20-year delay in repatriating export proceeds did not constitute willful default. Only the firm was liable to pay the reduced penalty, while penalties on deceased partners were waived.

What did the court decide?

The penalty on partners was waived, and the penalty was restricted to the firm alone for a deposit of Rs. 1,00,000 within six weeks.

FPA-FE-25/LKO/2013 of M/s. R & P Exports v/s The Joint Director… — Bail and Remand | ATFP (2017)

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APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT AT NEW DELHI

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Date of Decision: 31.08.2017

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FPA-FE-25/LKO/2013

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M/s. R & P Exports … Appellant Versus

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The Joint Director Directorate of Enforcement, Lucknow

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… Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant : Shri Johnson K. George. Advocate For the respondent : Shri Prashant Kumar Pandey, Legal Consultant with Ms. Aagam Kaur, Advocate & Shri P. Ojha, Respondent no. 2

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CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN

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JUDGEMENT

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FPA-FE-25/LKO/2013

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By this court, I propose to decide the present appeal against the impugned order whereby the Adjudicating Authority Assistant Director, Directorate and Enforcement, Zonal Office Lucknow vide Order No. ADJ/04/LZO/2013/AD(ASB)13/FERA/1405 dated 28.03.2013, imposed

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a penalty of Rs. 1,00,000/- on the firm M/s. R.P. Exports and Rs. 25,000/- on each of its 5 partners including Smt. Gayatri Devi deceased on 7.10.2002 for the alleged contravention of Section 18(2) of the FERA, 1973 read with Central Government Notification No. F1/67/EC/73-1 & 3

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FPA-FE-25/LKO/2013

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Page 1 of 9

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both dated 1.1.1974 and Section 18(3) of FERA 1973 ibid for the unrealized amount of $ 33437 and Canadian $ 5050 on the ground that the appellants failed to submit any documentary evidence efforts made for realization of the export proceeds.

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The brief facts are that two show cause notices for the above alleged lapse were issued simultaneously by the Deputy Director, New Delhi and the Deputy Director, Agra under their F.No. T- 4/415/02/2002/BD (AKL) dated 30.05.2002 and T-4/77/A/UP/2002 dated 18.05.2002, respectively, for taking action against non-realization of the export proceeds. The detailed reply to both the authorities giving details of the efforts made to realize the outstanding export proceeds but the appellant could not be able the realize.

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The Deputy Director, New Delhi and vide Memorandum No. T- 4/77/A/UP/2002 dated 18.05.2002 have been initiated by Deputy Director, Agra, dropped the proceedings before him under his Order in Original No. DD(S.S.)DZ/86/2004/779.

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The relevant dates of events, are given as under:

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(i) 15.06.2002 : The Appellants submitted the reply to the above said Memorandum/Show Cause Notice.

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(ii) 16.08.2003 : The Appellant submitted another reply to the Adjudicating Authority.

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(iii) 19.12.2003 : The Adjudicating Authority at Agra vide their letter No. T-444/415/DZ/2002/DD(AKL)/1473 dated 19.12.2003, in response to the Appellants’ letter dated 16.08.2003, forwarded copies of documents relied upon.

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FPA-FE-25/LKO/2013

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Page 2 of 9

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(iv) 07.05.2004 : The Adjudicating Authority at Agra vide its letter No. T-4/77/AUP/2002/SCN/2542 dated 07.05.2004 again sent the relied upon documents and fixed hearing for 18.05.2004. (v) 14.05.2004 : The Appellants submitted letter to the Adjudicating Authority at Agra in the matter.

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(vi) 08.02.2010 : The Adjudicating Authority sent to the Appellants letter of hearing conveying the date of hearing as 24.02.2010. The Appellants while receiving the letter of hearing on 18.02.2010, informed in writing on the notice itself that Smt. Gayatri Devi, one of the partners has since expired and a copy of death certificate was submitted.

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(vii) 22.02.2010 : The Appellants submitted letter dated 22.02.2010 (sent by Registered post) to the Adjudicating Authority at Lucknow wherein it was denied that they had failed to reply to the memorandum dated 18.05.2002 and explained the efforts made by them to realize the export proceeds.

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After hearing the Adjudicating Authority Assistant Director, Directorate and Enforcement, Zonal Office Lucknow vide Order No. ADJ/04/LZO/2013/AD(ASB)/13 FERA/1405 dated 28.03.2013, imposed a penalty off Rs. 1,00,000/- on the firm M/s. R.P. Exports and Rs. 25,000/- on each of its 5 partners including late Smt. Gayatri Devi for the alleged contravention of Section 18(2) of FERA, 1973 read with Central Government Notification No. F1/67/EC/73-1 & 3 both dated 1.1.1974 and Section 18(3) of FERA 1973 ibid for the unrealized amount of $ 33437 and Canadian $ 5050 on the ground that the Appellants failed to submit any documentary evidence efforts made for realization of the export proceeds.

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FPA-FE-25/LKO/2013

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Page 3 of 9

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It was contended on behalf of the respondent that Show Cause Notice dated 18.05.2002 was sent to the Noticees by Regd. AD which was neither returned back by the Postal Authorities nor any AD card was received. In view of letters dated 15.02.2002, 14.05.2004, 12.07.2005 and 22.10.2010 which were received from the appellant would show the appellant had received the Show Cause Notice dated 18.05.2002.

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It is also stated on behalf of respondent that after issuance of the Show Cause Notice, call notices dated 07.05.2004, 08.06.2015, 24.06.2005, 08.02.2010 and 08.03.2013 were issued to the notice for appearance before the Adjudicating Officer for personal hearing on 18.05.2004, 24.06.2005, 15.07.2005, 24.02.2010, 18.03.2013 and 21.03.2013. It shows that the Appellant was not desirous of pursuing the proceedings before the Adjudicating Authority.

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On merit, it was stated on behalf of the respondent that the burden being on the appellants to show that they had taken all permissible steps as are provided for under the law. Actually the export was to the tune of US $ 33437 and C$ 5050 made during the year 199094 and remain outstanding even after a period of twenty years and the notice has failed to submit any documentary evidence whatsoever. They did not obtain any general or special permission from the Reserve Bank of India for non-realization of export proceeds beyond six months which is the period specified under Sub-section (1) of Section 18 of the Act. Furthermore, the Appellants have not taken any steps to realize the exported proceeds.

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FPA-FE-25/LKO/2013

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Page 4 of 9

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It is stated that no doubt Government is encouraging exports to foreign countries mainly to earn foreign exchange. The purpose of encouraging exports is not only to earn foreign exchange, but also to preserve the foreign exchange in order to improve the wealth of the nation. And as has been rightly held in the case of Fayshaw Apparels

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Vs. The Appellate Tribunal for Foreign Exchange and The Special

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Director “the object of Foreign Exchange and Management Act is for promoting the orderly development and maintenance of foreign exchange market in India. The purpose of encouraging exports is in order to improve the foreign exchange reserves to improve the wealth of the nation. However in the present case the appellant was not serious about realization of the export proceeds.

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In the present case the appellants exported the goods in the year 1990-94 and repatriation of export proceeds was not realized within the prescribed period envisaged under the Act. Rule 8 of the Foreign Exchange Regulation, Rules clearly stipulates a period of six months, which has not been done in the instant case. No extension from RBI was obtained either, therefore the impugned order is correct.

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It is held in the case of Bharat Carpets Vs. Director, Enforcement Directorate “According to Section 18 (2) without general or special permission of the Reserve Bank of India, the exporter is required to repatriate the sale proceeds within the prescribed period of six months. Section 18(3) creates a rebuttable legal presumption against the exporter whenever the prescribed period expires without repatriation of the export proceeds to the effect that exporter had not taken requisite steps to obtain repatriation of the payment.

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FPA-FE-25/LKO/2013

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Page 5 of 9

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10. On merit-the case of the appellant

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(i) The Appellants had furnished the details of efforts in realization of the outstanding proceeds vide our letter dated 16.08.2003 along with already submitted copies of two communications dated 15.06.2002, 20.06.2003 and 25.09.2009 as an evidence showing the sincere efforts made to realize the export proceeds. The appellant also submitted a copy of its detailed reply dated 09.01.2004 to the Assistant Director, Enforcement Directorate, New Delhi. The appellants also appeared before the Adjudicating Authority Deputy Director, Agra on 19.09.2003.

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(ii) The appellant also submitted a copy of the advice of the Attorney and Counselor at Law Chicago Illinois, the USA dated 09.05.2017 in the matter relating to bankruptcy of the consignee of the goods to Deputy Director, Lucknow as well as the Deputy Director, Agra. But due to insolvency off the consignee the payment could not be realized from overseas. The matter was also pursued with the State Bank of India, Moradabad for outstanding export proceeds.

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(iii) The appellants have procured a certificate dated 22.09.2004 from the banker – State Bank of India, Moradabad (U.P.) certifying that export bills pertaining to the appellant firm were not showing any outstanding as per the XOS return as on 30.06.2014. It thus implied that there is no foreign exchange outstanding against out firm were not showing any outstanding as per the XOS returns as on 30.06.2014. It thus implied that there is no foreign exchange outstanding against our firm. The Bank had written off the

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FPA-FE-25/LKO/2013

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Page 6 of 9

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outstanding payment as per the RBI guidelines. The copy of relevant XOS Statement has already been placed on record.

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The evidence regarding efforts made by them to realize the outstanding export proceeds to the Deputy Director, Lucknow, the Deputy Director, Delhi and Deputy Director, Agra. The Deputy Director, Agra and the Deputy Director, Delhi did not transfer the records of the case including the reply/documents submitted before him to the Deputy Director, Lucknow, who proceeded with adjudication of the show cause notice without the documents already submitted with the Deputy Director, Agra and Delhi. Thus, principle of natural justice has not been followed in the case by passing the impugned order by the Deputy Director, Lucknow without examining the facts.

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It is also admitted position that one partner – Smt. Gaytri Devi had expired on 07.10.2002 and, therefore, penalty imposed upon her is liable to be set aside. As regards penalty imposed on the appellant firm and its partners, it appears to me that there is no willful default on the part of the appellants to bring the exports realization. Record shows that the appellants have made sincere efforts to realize the export proceeds but could not succeed due to circumstances beyond their control.

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Considering the overall facts and circumstances of the present case, the penalty imposed is only modified to the firm only as it is a settled law that in imposing penalty the requisite mens rea has to be established it has also been observed in Hindustan Steel Ltd. Vs. State of Orissa – 1978 (2) ELT (J-150) (S.C.) that

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“The discretion to impose a penalty must be exercised judicially. A penalty be ordinarily be imposed in cases where

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FPA-FE-25/LKO/2013

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Page 7 of 9

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the party acts deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation, but in cases where there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

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In Pravin N. Shah Vs. CESTAT [2014(305) E.L.T. 480 (Guj)], the

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Hon’ble High Court of Gujarat at Ahmedabad held that once the firm penalized, separate penalty not imposable upon partner of firm because partner is not a separate legal entity and cannot be equated with employee of firm if no specific rule attributed to partner – Rule 26 of the Central Excise Rules, 2002.

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Vinod Kumar Gupta Vs. Commissioner of Central Excise

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[2013(287) ELT 54 (P&H), the Hon’ble High Court held that proprietorship firm or proprietor thereof cannot be treated as two different legal entities, partnership firm is a firm in mercantile usage, however, penalty imposed on the proprietorship or partnership would mean penalty on the partners thereof. The Hon’ble High Court relied upon Calcutta HC Judgment in the case of Tarak Nath Sen & Ors. Vs. UOI (AIR 1975 Calcutta 337) wherein it was held that although a firm in the mercantile usage has a personality of its own, strictly in the eyes of law, it is not a legal entity like a natural person. Therefore, the rights and obligations of a firm are really rights and obligations of the individual persons of the firm, therefore, penalty imposed on the firm would amount to imposing penalty to the proprietor of the partners, as the case may be.

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FPA-FE-25/LKO/2013

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Page 8 of 9

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Thus the Order-in-Original No. ADL/04/LZO /2013/AD/(ASB)13 /FERSA/1405 dated 28.03.2013 passed by the Assistant Director, Directorate of Enforcement, Zonal Office, Lucknow is modified to the extent that only penalty imposed would only is recoverable from the firm in view of peculiar facts and circumstances of the matter.

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The penalty imposed upon against the partners is waived. The appellant firm shall deposit Rs. One Lakh with the respondent within six weeks the date of receipt of order. In failure to do so the said amount under this order is recoverable by the respondent without any further delay. Copy of the order be sent to the appellant by the registry.

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