Partly allowed

FPA-FE-218/HYD/2015 of Smt. P. Venitha v. The Joint Director Directorate of Enforcement, Hyderabad

ATFP11 Nov 2024FPA-FE-218/HYD/2015

Case brief

AI extract

What is this about?

Appeal against penalty under FERA 1973 for unrealized export proceeds. Tribunal held appellant liable as firm proprietrix, rejected fraud plea due to lack of evidence, but reduced penalty to match pre-deposit amount.

What did the court decide?

Impugned order modified; penalty reduced to Rs. 5,00,000/-; appeal disposed of.

What the court decided

FPA-FE-218/HYD/2015 of Smt. P. Venitha Vs. The Joint Director… — Banking and Recovery | ATFP (2024)

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APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

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RP-FE-09/HYD/2015(Misc) MP-FE-144/HYD/2018(COD) FPA-FE-218/HYD/2015 Smt. P. Venitha … Appellant

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Versus

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The Joint Director … Respondent Directorate of Enforcement, Hyderabad

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Advocates/Authorized Representatives who appeared

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For the Appellants : Mr. Mr. Yogesh Bhatt, Mr. Robin George, Advocates For the Respondent : Mr. Surender Kumar, Advocate

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CORAM SHRI V. ANANDARAJAN : MEMBER

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ORDER 11.11.2024

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The present appeal arises from the order dated 20.06.2008, passed by the Ld. Special Director of Enforcement (adjudicating authority) whereby a penalty of Rs.45 lakh was imposed on the appellant for the contravention of section 18(2) of FERA,1973.

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Facts in Brief

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The brief facts of the case are that, in the year 1998 M/s Sai International,Hyderabad effected export of the following consignments of readymade garments to Dubai, to the extent of Rs. 2,51,80,620/- declaring the said shipments under GR forms as mentioned below: -

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S.No.	GR Form No.	Date	Name of the buyer	Amount (Rs.)
(a)	767908	23.10.98	M/s Heera sons Al Hashmi Commercial Enterprises	1,23,23,850/-
(b)	211011	27.11.98	-do-	1,23,09,000/-
(c)	224937	16.03.99	Self a/c of Indian Association of Dubai	5,47,770/-
TOTA	L			2,51,80,624/-

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Investigations revealed that the said noticee firm, Sai International, without any permission from the Reserve Bank of India (RBI) took or refrained from taking action which had the effect of securing that the export value to the tune of Rs. 2,51,80,620/- in respect of the aforesaid goods was not received in India by the said noticee firm within the prescribed period or the time extended by the RBI, in the prescribed manner.

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3. Investigations further revealed that Smt.

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P.Venitha,Proprietrix of the firm,was the person in-charge of and responsible to the said firm for the conduct of the day-today business of the said firm during the relevant period. Sh. Dilip Nihalani and Sh. V.K Singh aided and abetted the said proprietrix and were responsible for the realization of the export proceeds.

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On conclusion of investigation, a Memorandum No. T-4/13BAN/2002, dated 19.04.2002 was issued to Smt. P.Venitha, Proprietrix of the firm on the groundthatby her taking

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action/refraining from taking action without any permission of the RBI which had the effect of securing that the payment for the goods(receipt of export value of goods) exported to the tune of Rs. 2,51,80,620/- was not received in India within the prescribed period or the period extended by RBI which resulted in contravention of the provision of Section 18(2) of FERA,1973 read with Central Govt. Notification No. F.1/67/EC/73-1 and 3 dated 1.1.74 and section 18(3). Notices were also issued to Sh. Dilip Nihalani and V.K Singh on the ground that they aided and abetted Smt. P. Venitha in making the said exports and were also responsible for the realization of the export proceeds and contravened the provisions of Section 18(2) and 18(3) read with Section 64(2) of the FERA,1973. The Memorandum was issued under Rule-3 of the Adjudication Proceedings and Appeal Rules,1974, read with Sub-Section (3) and (4) of Section 49 of the FEMA,1999.

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The above proceedings culminated in the impugned order dated 20.06.20 imposing the following penalties on the noticees:

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(a) Penalty of Rs. 45,00,000/on Smt. Venitha, proprietrix of M/s Sai International, Hyderabad under section 50 of the FERA,1973.

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(b) Penalty of Rs.50,00,000/- each on Sh. V.K Singh and Dilip Nihalani, under section 50 of FERA,1973

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Aggrieved by the said order, the appellant, Ms. P. Venitha, has filed the present appeal challenging the said order on various factual and legal grounds. Insofar as the penalties imposed on

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Sh. V.K. Singh and Sh. Dilip Nihalani are concerned, the same are not thesubject matter of the present appeal.

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Arguments on Behalf of the Appellant

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Firstly, the learned counsel for the appellant sought to explain the factual context of the case in detail. It is stated that the appellant had set up the firm M/s Sai International in 1997-98 to participate in the Dubai Shopping Festival. She participated in it the first time with imitation jewellery worth Rs. 60,000/-. In 1997, she participated with imitation jewellery and books worth Rs. 75,000/-. In 1999, she took sarees worth Rs.6 lakh. In 1998, while in Dubai, she met one Mr. Dilip Nihalani who had a firm by the name M/s. Al Sama Al Zarga Trading Co. LLC and offered her money if she would export materials arranged by him from Hyderabad using her firm's name.

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Mr. Dilip Nihalani came to India in August/September, 1998 and executed an agreement dated 11.09.1998 with her, whereby, she would lend the name of her firm to him for making exports while he took responsibility for fulfilling all legal obligations with respect thereto. A copy of the agreement executed with Mr. Dilip Nihalani has been placed on record by the appellant. Pursuant to the said agreement, Mr. Dilip Nihalani gave the appellant a sum of Rs. 50,000/- to open a bank account of the firm. After opening the bank account, the appellant handed over blank cheques to him, whereafter, the account was operated by him.

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It is submitted that the exports made under GRs No. 767908 and 211011 were made by Mr. Dilip Nihalani for which Mr. V.K.

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Singh, the Customs House Agent (CHA) made her sign some blank documents, besides that, she had no role whatsoever with respect to the said exports. The appellant was not aware from where Shri Dilip Nihalani procured the exported material or where he got orders. In fact, when GR No. 767908 was shown to the appellant, she denied signing it and stated that the signature appearing thereon were not hers and had been forged. No documents with respect to the said exports were found to be available at her residence at the time of search made by the officials of the Enforcement Directorate (ED). The documents with respect to the said exports were seen by the appellant for the first time when it was recovered from the office of Mr. Dilip Nihalani. It is also pointed out that the above statement of the appellant was corroborated by the statement of her husband recorded on 26.06.2001 wherein he stated that Mr. Dilip Nihalani got the appellant to open a bank account in the name of M/s. Sai International and the appellant had handed over signed cheques to him and Mr. Nihalani was making the exports in the name of the firm. Mr. Nihalani and Shri V.K. Singh looked after the activities relating to the exports made by the firm.

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Secondly, it is contended that the impugned order has been passed in clear violation of the principles of natural justice inasmuch as the appellant was deprived of an effective hearing. In this context, it is submitted that as can be seen from Para No. 10 and 12 of the impugned order, the appellant had been requesting to be provided the documents which were appended to the Memorandum dated 19.04.2002. The same were not

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provided to her though they were relevant for adjudication of the case. As such, failure to provide the documents sought prevented the appellant from preparing a proper defence to the Memorandum issued against her and the opportunity of hearing afforded to her was ineffective.

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It is further contended that even otherwise, as can be seen from paras No. 7 to 22 of the impugned order itself, the appellant has never avoided the summons of the adjudicating authority for personal hearing but merely sought accommodation considering her peculiar circumstances, namely, being a single-mother looking after two minor children with no sustainable source of income to either travel to Delhi or engage counsel. It was in this context that the appellant had requested the adjudicating authority to convene the hearings in Hyderabad, as recorded in paras No. 7, 10, 12 of the order. The appellant had a justifiable reason for non-appearance. However, the adjudicating authority held that the appellant was unresponsive and proceeded to hear the case ex parte on the basis of the documents before it while completely ignoring the fact that owing to the non-supply of the documents appended to the memorandum dated 19.04.2002, the appellant was virtually rendered without any defence whatsoever. As such, the impugned order having been passed in violation of the fundamental principles of natural justice, needs to be set aside on this ground alone.

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Next, it is pointed out that the adjudicating authority has, in para 26 of the impugned order, recorded the appellant's submission that the signatures on the GR No. 767908 were not

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hers. However, the adjudicating authority did not return any finding on the said matter which was a material issue and proceeded on the erroneous premise that the said GR forms also contained her signatures.

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Coming next to the legal contentions, it is argued that Section 18(1)(a) of the 1973 Act imposes on an “exporter” the obligation to furnish a declaration with respect to the full export value of the goods along with an affirmation that the same has been or will be paid in the prescribed manner, whereas section 18(2) provides that “no person” shall,except with the RBI,do or refrain from doing anything or take or refrain from taking any action which has the effect of securing the proceeds of the exports otherwise than in the prescribed manner in the prescribed time. The use of the word “any person” instead of “exporter” used earlier on in the same provision implies that the obligation to ensure recovery of funds is not always on the exporter but is wide enough to cover more persons as specified in section 18(3). The said provision contemplates that where the period prescribed for receiving the payment has expired and the payment has not been received,it shall be presumed,unless the contrary is proved by the “person” “who has sold” or “is entitled to sell the goods” or “to procure the sale thereof,” that “such person” has not taken all reasonable steps to receive or recover the payment and “he shall” accordingly be presumed to have contravened the provision of subsection (2). Thus,it is not always the exporter of the goods who is guilty for contravention of section 18(2) but any person who has sold or is entitled to sell or to procure the sale thereof. There is no other justification

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for the use ofdifferent expressions like “persons” “who has sold” or is entitled to sell the goods or to procure the sale thereof in the same section if the objective was to hold the exporter only guilty for the contravention. This is also the reason why the statute further goes on to say that heshall be presumed to have contravened the provision and not “he shall also”, i.e., in addition to the exporter. An exporter can be liable for contravening the provisions of section 18(2) only in a circumstance when, in addition to being the exporter, he is also the person “who has sold” or is entitled to sell the goods or to procure the sale thereof.

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It is also contended that the Appellant was unaware of the export transactions andcame to know of them only when the documents thereof were found from the office of Mr.Dilip Nihalani.

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It is further contended that it was Mr.Dilip Nihalani who had sold the goods,was entitled to sell the goods under the name of the firmin terms of the agreement executed with the Appellant, it was he alone who was responsible for bringing the funds and on failure to do so,had committed the contravention of section 18(2) with the collusion of Mr. V.K.Singh and the Appellant,who had no role whatsoever in the sale but only featured in the entire transaction only because the export was made under the name of her firm, i.e.,at best she only the named exporter.

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It is also contended that the agreement dated 11.09.1998 executed between the Appellant and Mr. Dilip Nihalani, the Appellant had agreed to permit the latter to conduct the

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business of import and export using the Import Export Code of the firm which would eventually be transferred to Mr. Nihalani and that, pending such transfer, he could utilise the Code for conducting his business for which a new bank account will be opened andthe appellant will hand over blank cheques to him.It was also specifically agreed that Mr. Dilip Nihalani alone shall be responsible for the deeds and acts done by him using the code and thathe shall conduct only legal business operations and not engage in corrupt malpractice, Pertinently,it is a contract permissible within section 47(1) of the 1973 Act.

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Based on the above contentions, it is prayed by the appellant that the impugned order dated 20.06.08 be set aside.

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Arguments on Behalf of the Respondent

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The respondents have opposed the arguments and contentions advanced on behalf of the appellants. The Ld. Counsel for the respondent placed strong reliance upon the facts brought out in the impugned order. He emphasized that as the proprietrix of the firm which had made the exports which were involved in the contravention, the appellant was the person in charge of and was responsible for the conduct of dayto-day business of the firm during the time of the contravention. He pointed out that Sh. VK Singh, CHA had clearly statedin his statement that the appellant Ms. Venitha approach him along with Sri Dilip Nihalani inconnection with the second export. As such, her contention that blank documents were sent to her by him for signatures was incorrect. She came to his office along with Sri Nihalani and signed all the documents, including GR forms in his presence.

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It was also submitted by the learned counsel for the respondent that the appellant had been taking the plea of fraudcommitted by VK Singh and Nihalani on her, but it is evident from the record that she had not initiated any steps against the said fraud. There is no document in support of any civil or criminal proceedings initiated by the appellant against the said two persons.

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Based on the above contentions the learned counsel for the respondent strongly reiterated that the evidence on record clearly brings out that Sai International, the proprietorship concern of the appellant had exported goods to the tune of Rs. 2,51,80,620/- during the year 1998 and failed to realise the export proceeds within the prescribed period of time or the period of time extended by RBI in the prescribed manner and thus, the appellant had clearly contravened the provisions of section 18(2) of FERA, 1973. It is also reiterated that M/s Sai International availed huge duty draw back and they have not submitted any evidence of surrender of drawback of more than Rs. 14 lakh availed.

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Based on the above contentions, the respondents have prayed that the present appeal be dismissed.

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Analysis and Findings

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I have given careful consideration to the facts on record and the rival contentions of the parties. The undisputed facts of the case are that M/s Sai International, Hyderabad, which had made the exports in question in respect of which the proceeds remained unrealized, was established by the present appellant, Ms. P. Venitha, who continued to remain its proprietrix during

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the relevant time when the exports in question took place. It is also evident that the appellant was an entrepreneur who had previous experience and knowledge aboutthe field of exports since she had not only set up the concern Sai International with the intention of participating in export trade, but had already participated in the Dubai Shopping Festival on more than one occasion as per her own admission. Even otherwise, ignorance of law cannot be pleaded as a defence since it is a fundamental tenet that every person is presumed to know the law to which he or she is subject.

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It is also not in dispute that the subject exports were made using the Import-Export Code (IEC) of M/s Sai International, the proprietary firm of the present appellant. The IEC was not transferred in pursuance of the so-called agreement with Shri Nihalani and continued to remain in the name of her proprietary firm.

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The respondents have pointed out that huge dutydrawback of more than Rs. 14 lakh was availed by M/s Sai International on the exports which amounts to a fraud on the government exchequer.

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The so-calledcontract dated 11.09.1998between the appellant and Sh. Dilip Nihalani is admittedly not registered, nor was it filed before any governmental authority, including the DGFT or the Customs after its alleged execution, which may have indicated towards its genuineness and proved that it was not a product of afterthought. Moreover, merely entering into an agreement cannot absolve the appellant, being the proprietrix of M/s Sai International, so long as she remained de

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jure the proprietrix of that concern which continued to conduct business under her name.

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As pointed out by the learned counsel for the respondent, Sh. V.K. Singh, CHA has stated on record that the appellant came to his office along with Sh. Nihalani to sign all the documents relating to the second export which was handled by him.

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I also find merit in the submission of the learned counsel for the respondent that appellant is shifting the onus on V.K Singh and Dilip Nihalani by claiming that she was a victim of fraud committed by them but has not presented any evidence of anylegal action having been initiated by her against V.K Singh and Dilip Nihalani by filing a civil or criminal case against them. On the contrary, the appellant herself was convicted along with Sh. V.K. Singh by the Ld. Special Judge for Economic Offences, Hyderabad, although awarded a lightsentence of imprisonment till rising of the Court.

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On law, it was argued by the learned counsel for the appellant that while sub-section (1) of FERA, 1973 imposes obligations on the “exporter”, including the obligation to furnish a declaration with respect to the full export value of the goods along with an affirmation that the same has been or will be paid in the prescribed manner, sub-section (2) of that section is wider in scope and imposes obligations on any “ person”. The use of the word “any person” instead of “exporter” used in Subsection (1) implies that the obligation to ensure recovery of funds is not always on the exporter alone but covers more persons as specified in section 18(3), i.e., “person who has sold

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or is entitled to sell the goods or to procure the sale thereof” and they shall accordingly be presumed to have contravened the provisions of sub-section (2). Thus, it is not always the exporter of the goods who is guilty for contravention of section 18(2) but any person who has sold or is entitled to sell or to procure the sale thereof. It is contended that otherwise, there is no justification for the use of different expressions in sub-section (1) and (2) of Section 18 if the objective was to hold the exporter alone guilty of the contravention.

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Having considered the above contention of the appellant, I do not see how it come to the rescue of the appellant in the present case.It is evident that the term “person” used in subsections (2) and (3) would take within its ambit not only the exporter but also any other person who contravenes the provision. Therefore, the liability will be on the exporter as well as on any other person responsible for the contravention. The appellant, as the proprietrix of Sai International was responsible to ensure the realization of the export proceeds andcannot evade responsibility for the same. Nor has the appellant alone been held responsiblefor the contravention in the present case, as even higher penalties were imposed on Sh. Nihalani and Sh. V.K. Singh.

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I also do not find any merit whatsoever in the contention of the appellant that she was denied the opportunity of being heard.Mere perusal of paragraphs 7,9,10,12,13,15,17,19 and 21 indicate that opportunity after opportunity was given of the appellant by issue of call letters but each time, she came up with one reason on the other for seeking adjournment and

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expressed her inability to attend. As such, in alleging lack of opportunity the appellant is seeking to take advantage of her own repeated default in putting up an appearance in response to notices issued by the adjudicating authority.

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In light of the above discussionsI am of the view that the appellant has rightly been held responsible for the contravention and liable for imposition of penalty. Insofar as the quantum of penalty is concerned, however, I am of the view that the ends of justice would be met if the same is reduced to Rs. 5,00,000/-, i.e., the amount already paid by the appellant by way of pre-deposit. While coming to this conclusion, I have kept in mind the totality of facts emerging from the record and the submissions made from either side. While the exports were no doubt made under the name and style of M/s Sai Exports and the relevant documents were signed by the appellant as its proprietrix who has, therefore, rightly been held responsible for the contravention, it would appear that de facto, the transactions were master minded by Sh. Nihalani who has evidently absconded and remained untraceable. There is also nothing to indicate that the appellant was the ultimate beneficiary of the export incentives availed. Insofar as the present appellant is concerned, it also appears that the transactions in question are the only instances of violation of FERA, 1973 or its successor legislation, FEMA, 1999.

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The impugned order shall, therefore, stand modified as above and the quantum of penalty imposed shall stand reduced to Rs. 5,00,000/-. It is ordered accordingly.

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