Dismissed

FPA-FE-74/DLI/2010 of Shri Sam Edward Laub v. The Special Director, Directorate of Enforcement, Delhi

ATFP12 Jun 2024FPA-FE-74/DLI/2010

Case brief

AI extract

What is this about?

The Appellate Tribunal under SAFEMA dismissed appeals filed by Silicon Graphics Systems and individual appellants against an order imposing penalties under FERA for failure to submit Exchange Control Copies of Bills of Entry. The Tribunal rejected claims of limitation-barred proceedings, affirmed strict liability, and held that the appeal challenges were moot as the Adjudicating Authority had alre

What did the court decide?

The appeals were dismissed and the orders were disposed of; penalties imposed on the company and individual appellants were upheld.

FPA-FE-74/DLI/2010 of Shri Sam Edward Laub Vs. The Special… — Company and Corporate | ATFP (2024)

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APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

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1. MP-FE-100/DLI/2010 (Recall) In FPA-FE-72/DLI/2010
Silicon Graphics Systems (P) Ltd.	… Appellant
2. FPA-FE-73/DLI/2010
Shri Ashok K. Desai	… Appellant
3. FPA-FE-74/DLI/2010
Shri Sam Edward Laub	… Appellant
4. FPA-FE-75/DLI/2010
Shri John C. Metacalfe	… Appellant
5. FPA-FE-76/DLI/2010
Shri Steve Cakebread	… Appellant
Versus
The Special Director, Directorate of Enforcement, Delhi	… Respondent
Advocates/Authorized Representatives For the appellant : Shri Shri	who appeared Rajiv Tyagi, Adv. Rohit Gupta, Adv.
For the respondent : Shri	Varun Mishra, Adv.

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CORAM

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JUSTICE MUNISHWAR NATH BHANDARI : CHAIRMAN SHRI BALESH KUMAR : MEMBER

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FINAL ORDER

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12.06.2024

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This Order disposes of the Appeals No. FPA-FE-72-

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76/DLI/2010 filed by M/s Silicon Graphics Systems (P) Ltd., Shri Ashok K. Desai, Shri Sam Edward Laub, Shri John C. Metacalfe and Shri Steve Cakebread against the Order No. SDE/SKP/III/158/2003 dated 26.09.2003 passed by the FPA-FE-72-76/DLI/2010 Page 1 of 17

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Special Director, Enforcement Directorate, New Delhi. Ld. Adjudicating Authority has imposed penalty of Rs. 2,04,00,000/- on the Appellant M/s Silicon Graphics Systems (P) Ltd and penalty of Rs. 50,00,000/- on each of the four Appellants Shri Ashok K. Desai, Shri Sam Edward Laub, Shri John C. Metacalfe and Shri Steve Cakebread. The charge against the Appellant M/s Silicon Graphics Systems (P) Ltd for contravention of Section 8 (3) and Section 8 (4) of Foreign Exchange Regulation Act 1973 (FERA) r/w Chapter 7 (A), 20 (i) of the Exchange Control Manual, 1995 (ECM) has been held as established. The charge against the remaining four Appellants for the contravention of the aforementioned provisions r/w Section 68 (1) of FERA has been held as established. The charges were invoked against the Appellant M/s Silicon Graphics Systems (P) Ltd for having failed to submit Exchange Control Copy of Bill of Entry as confirmation of having imported material for which US $ 7,67,983.46 was remitted through Citibank, Sansad Marg, New Delhi (Authorized Dealer) during the years 1995, 1996 and 1997. During the relevant period the remaining four Appellants were allegedly in-charge of and responsible to the said company for the conduct of the day-to-day business of the company.

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This Tribunal issued Order dated 18.11.2015 whereby the application for waiver from pre-deposit of penalty was disposed

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FPA-FE-72-76/DLI/2010

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of with the direction that the Appellants shall deposit 10% of the amount of penalty imposed against each of them and further furnish reliable security for the 50% of the amount of total penalty imposed against each of the Appellants within a period of 30 days from the date of communication of this Order. The Order was pronounced in the presence of the Ld. Counsel for the Applicants/ Appellants and Ld. Legal Consultant appearing on behalf of the Respondent. On perusal of the Order sheet dated 04.12.2017 it appears that the appeal of the Appellant against the Order dated 18.11.2015 for the waiver of pre-deposit was dismissed by the Hon’ble Delhi High Court on 29.11.2017. Hence, the Tribunal directed the Appellants on 04.12.2017 to comply with the Order on waiver application within next 30 days. The Tribunal dismissed the Appeals on 22.01.2018 for not complying with the Order dated 04.12.2017. The Appeals were restored on 20.03.2018 by allowing the application to that effect by the Appellants. The Appellants informed that their SLP before the Hon’ble Supreme Court against the Order of the Hon’ble Delhi High Court had been dismissed. On 22.10.2018 the Ld. Counsel for the Appellants informed the Tribunal that Rs. 40,40,000/- has already been deposited through demand draft with the respondent. The Order sheet dated 08.04.2019 on the Appeal file reveals that the Appellant informed that the Bank Guarantee has been furnished. The Tribunal directed the

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FPA-FE-72-76/DLI/2010

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Appellants to keep on renewing the Bank Guarantee till the Appeals are finally decided. On 26.02.2024 this Tribunal gave an opportunity enabling the Ld. Counsel for the Appellant to prepare statement of 12 disputed Bills of Entries and give a narration of relevant proof that such Bills were furnished to Citibank. Ld. Counsel for the Respondent was given chance to controvert the said statement.

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Ld. Counsel for the Appellants argued on 30.04.2024 that the Ld. Adjudicating Authority took cognizance of the alleged default beyond the period of 2 years prescribed in Section 49 (3) of the Foreign Exchange Management Act, 1999 (FEMA) r/w Sections 50 and 51 of FERA. The Memorandum dated 31.05.2002 was received by the Appellant in the first week of July 2002. He also alleged that the Memorandum was ante dated. Ld. Counsel for the Appellants further argued that the purported clarification/ confirmations and the letter dated 25.09.2003 obtained from Citibank were behind the back of the Appellants and the Appellants were not even confronted with the clarification/confirmations. They were not given the opportunity to cross-examine the officials of the Citibank. Hence, there was violation of principles of natural justice and the adjudication proceedings were barred by the doctrine of audi alteram partem.

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FPA-FE-72-76/DLI/2010

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Ld. Counsel for the Appellants stated that the entire burden of obtaining the Exchange Control Copy of the Bill of Entry from the Appellants and then furnishing it to the RBI was that of the Citibank, the Authorized Dealer (AD). The provisions of Chapter 7 A 20 of ECM has cast responsibilities on the AD which the Citibank failed to discharge. He alleged that the Respondent Enforcement Directorate was in connivance with the Citibank in giving clean chit to the AD and in obtaining letter dated 23.09.2002 at their back. He stated that in any case the ECM requires even the Citibank to preserve Exchange Control Copies of the Bills of Entry for a period of one year only from the date of its verification. He contended that the secondary evidence produced by the Appellants in the form of the affidavit of Dr. Prashad Medury, Managing Director of the Appellant Company along with certificate of Chartered Accountant should have been accepted as these show that the imports did take place. These imports were made against proper invoice and Customs documentation in respect of the spares imported from the parent company M/s Silicon Graphics Inc, USA. Therefore, non-filing of the Exchange Control Copy of the Bills of Entry is merely a technical breach. He stated that no attempt was made to obtain the copies of the Bills of Entry from the Customs Department. He submitted the written arguments on 16.05.2024 wherein he cited in addition judgments on cross-examination and on non-filing of the

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FPA-FE-72-76/DLI/2010

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Exchange Control Copies of the Bills of Entry being a technical breach.

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Ld. Counsel for the Respondent stated that it is on the basis of the letter no. EC.DEL.BEF(ED)/3758/99-00 dated 02.05.2000 from the Reserve Bank of India (RBI) that the Enforcement Directorate initiated its enquires. He further stated that the Directorate issued letters no. T- 3/BE/595/DZ/676/99/JS dated 08.06.2001 and 28.09.2001 issued under Section 33(2) of FERA, 1973 r/w Section 49(3) & (4) of FEMA addressed to the Appellant company and to the AD calling for information relating to the 12 Bills of Entry. However, the Appellants replied only on 23.05.2002 submitting details of Bills of Entry furnished to Citibank. The Appellants vide letter dated 30.05.2002 furnished copy of two certificates issued by the Bank, copy of affidavit of MD of the Appellant company, list of Directors at the time of remittance and CA certificate that the payments were made for imports which have been duly accounted for in the books of accounts. He argued that it is only after receiving replies of the Appellants that the Respondent Directorate could issue Show Cause Notice (SCN) on 31.05.2002. He argued that the letter dated 25.09.2003 from the AD is merely confirmation of the information available with the Appellant company. In fact, letter dated 25.09.2003 is in favour of the Appellants as it

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FPA-FE-72-76/DLI/2010

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reduces the liability from US $ 7,67,983 to US $ 6,82,499 and does not cause any prejudice to their interest. Moreover, this letter became a necessity to dispense justice in view of the contentions made by the Appellants that they had furnished the copies of 12 Bills of Entry to the AD.

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Ld. Counsel for the Respondent stated that the Appellants have furnished the details relating to 2 Bills of Entry on pages 33 and 34 of the Appeal paperbook. The Citibank had on 18.06.2002 informed the Appellant Company that the Bill details relating to the Original Exchange Control Copy furnished by them on 03.07.2002 did not match the Bill details referred by the Citibank. He further argued even though the documents dated 24.04.1995 at page 33 and 34 of the Appeal paperbook show transfer amount of US $ 12,347 which relates to the Bill of Entry amount listed at Serial No. 9 of the list enclosed with the letter dated 18.06.2002, the beneficiary shown in the documents is Cabletron Systems Pte Ltd. which is different from the parent company from whom the Appellants claimed to have imported the goods. Ld. Counsel for the Respondent therefore pleaded that the Appeals may be dismissed.

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We have considered the rival submissions and carefully examined the material on record. We find that the Appellant

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FPA-FE-72-76/DLI/2010

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company remitted foreign exchange US $ 7,67,983.46 through the AD during the years 1995, 1996 and 1997. The Respondent Directorate asked for information relating to the said remittances vide letters no. T-3/BE/595/DZ/676/99/JS dated 08.06.2001 and 28.09.2001 issued under Section 33(2) of FERA r/w Section 49 (3) & (4) of FEMA. These letters are listed in the Annexure to the Memorandum dated 31.05.2002 from the Appellants and the AD. Again, the Respondent Directorate on 10.04.2002 sought certificate of the banker in support of submission of Exchange Control Copy of the Bills of Entry from the Appellant. Copy of the letter is placed as Annexure A2 to the Appeal Paperbook. Letter dated 10.04.2002 has an Annexure bearing the details of the remittances made. However, the authorized signatory of the Appellant Company conveyed that the Annexure detailing the remittances was not received. On 20.05.2002 the Appellant Company further informed that they have requested the AD to give the requisite certificate. Finally, on 30.05.2002 the Appellant Company forwarded two certificates from the AD, an affidavit of the MD, CA certificate and the list of Directors of the Appellant Company at the time of remittance. It is obvious that the Appellants having taken so much of time in furnishing the information, the Respondent Directorate could not have but issued the Memorandum of Show Cause Notice No. T-4/441-D/2002/213 (SCN) on 31.05.2002. The Appellant

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FPA-FE-72-76/DLI/2010

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while contending that they received the SCN in first week of July 2002, alleged that the Memorandum had been ante dated. However, the allegation is baseless as there is nothing on record vide which the Appellants have substantiated it. Moreover, Section 49 (3) of FEMA reads as follows:-

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49 (3) Notwithstanding anything contained in any other law for the time being in force, no court shall take cognizance of an offence under the repealed Act and no adjudicating officer shall take notice of any contravention under section 51 of the repealed Act after the expiry of a period of two years from the date of the commencement of this Act.

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The only requirement is that the Adjudicating Officer takes notice of the contravention under the repealed Act within two years of the commencement of the new Act. It is matter of record that the SCN is signed on 31.05.2002 which is within two years of the commencement of FEMA on 01.06.2000.

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In response to the SCN the Appellants submitted that while they were trying to retrieve the desired documents however, the same had been misplaced due to the shifting of the administrative office from New Delhi to Gurgaon. On 18.08.2003 the Appellants submitted that they had furnished the Exchange Control Copies of the Bills of Entry to the AD. Further, the four Directors of the company, who are

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FPA-FE-72-76/DLI/2010

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Appellants herein, were no longer employed with the Appellant Company hence they should be discharged from the present proceedings. It is observed that vide letter dated 30.05.2002 the Appellants had given the names of the Directors of the company at the time of remittance during the period 19951997 and hence it is surprising that the argument is being made at subsequent stage to drop the charges against them as at that stage the four Directors ceased to be the employees of the Appellant company. In this regard, the provisions of Section 68 (1) of FERA leave no scope for doing so, as is obvious from the provisions below:

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68(1) Offences By companies - Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly:

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Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.

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FPA-FE-72-76/DLI/2010

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It is therefore important to note that at the relevant time the four individual Appellants were the Directors of the Company concerned. There is no pleading on record that the contravention occurred either without the knowledge of the Directors or in spite of them taking all due diligence to prevent the contravention.

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The Appellants have referred to the Affidavit of Dr. Prasad Medury, the Managing Director of the Appellant Company with respect to 11 remittances so as to state that these were made for the import purchases and they were unable to produce the Exchange Control Copy of Bills of Entry. The Affidavit was notarised on 30.05.2002. A certificate dated 30.05.2002 issued by a Chartered Accountant was also submitted for 11 remittances certifying that the payment for the imports had been made only once. The remittances which have been impugned in the SCN are 12 in number. The relevant provisions in this regard are Section 8 (4) of FERA r/w Chapter 7A, 20 (i) of the Exchange Control Manual, 1995 as follows:

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8 (4). For the avoidance of doubt, it is hereby declared that where a person acquires foreign exchange for sending or bringing into India any goods but sends or brings no such goods or does not send or bring goods of a value representing the foreign exchange acquired, within a

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reasonable time or sends or brings any goods of a kind, quality or quantity different from that specified by him at the time of acquisition of the foreign exchange, such person shall, unless the contrary is proved, be presumed not to have been able to use the foreign exchange for the purpose for which he acquired it or, as the case may be, to have used the foreign exchange so acquired otherwise than for the purposes for which it was acquired.

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7A, 20(i)- It is obligatory on the part of the importer to submit Exchange Control Copy of Bill of Entry for Home Consumption/Postal/Courier wrapper to the authorised dealer within three months from the date of remittance (or within prescribed period as provided in paragraph 7A. 10) through whom related remittance was made as evidence that the goods for which the payment was made have actually been imported into India.

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It is for the purpose for ensuring that the foreign exchange so acquired is utilized as per declaration and the goods which get imported against such foreign exchange remittance are the same as the goods of value, kind, quality or quantity which are not different from that specified by him at the time of acquisition of the foreign exchange. To meet such rigors that submission of Exchange Control Copy of the Bills of Entry has been made obligatory. The Affidavit and the Certificate fail to meet the requirements of law. The details therein were not sufficient as to serve the objectives of Section 8 (4) of FERA to ensure that the same goods have been imported for which the declaration had been made to the AD FPA-FE-72-76/DLI/2010 Page 12 of 17

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while releasing the foreign exchange. Therefore, the plea of the Appellants that non-submission of Exchange Control Copy of the Bills of Entry is merely a technical breach cannot stand. The Hon’ble High Court of Calcutta in the judgment dated 17.09.2008 in the case of Suborno Bose vs. Appellate Tribunal for Foreign Exchange and Ors.

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[MANU/WB/0256/2008] held that non-submission of the Bills of Entry to the AD for the imports made against the remittances released cannot be stated to be a technical violation and it is well settled law that contravention of the said Act (FEMA) or FERA has created a strict liability.

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The Appellants have attempted to shift the entire burden of obtaining the Exchange Copy of the Bills of Entry to the AD. They have pleaded that they were not required to retain the said copies beyond one year. However, the Exchange Control Manual stipulates that in cases under investigation by the investigating agencies, the Exchange Control Copy of the Bills of Entry should have been preserved till the investigating agency gives the clearance for destruction. It is to be noted that the Appellants have failed to produce evidence of even an acknowledgement from the AD about their submission of the Exchange Control Copy of the Bills of Entry. The plea of the Appellants that the relevant copy of the Bills of Entry should have been obtained by the Respondent Directorate from the

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Customs Department is to be rejected in view of the requisites of the law are required to be met in the manner which is prescribed therein so as to meet the objectives of the law. The contraventions cannot be regarded as technical in nature because the Appellants failed to establish for majority of the impugned remittances that the imports had in fact taken place. The Appellant Company has made claim to have imported spares from its parent company M/s Silicon Graphics Inc USA. In spite of that claim the Appellant could not obtain alternative documents which could bring out the details of the imports that were actually made, unlike the facts relating to the case of Sunil Engineering Corporation Vs. Union of India [(2005) 117 DLT 525].

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The Ld. Adjudicating Authority stated in the impugned Order that the Appellants filed two copies of statements dated 29.08.2001 which do not bear authentication of the Bank. They also furnished copies of acknowledgments issued by said Bank and claimed that the noticee company submitted Bills of Entry. However, as argued by the Ld. Counsel for the Respondent, the acknowledgments do not match the material particulars for the impugned remittances. On account of above said copies of acknowledgments of the Citibank, the Ld. Adjudicating Authority obtained detailed clarification /confirmation from Citibank and the Bank in their letter dated

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25.09.2003 confirmed the status of 12 Bills of Entry as

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follows:

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Sl. No.	Amount in USD	Date	B/E	Sl. No. of SCN
1.	5,17,19.00	13.09.1996	Part B/E for USD 5248.50received	Sl. No. 1 of SCN
2.	77,840.00	11.10.1996	B/E received	Sl. No. 2 of SCN
3.	32,925.00	11.10.1996	Part B/E for USD 2405received	Sl. No. 3 of SCN
4.	16,683.70	11.10.1996	B/E not received	Sl. No. 4 of SCN
5.	22,634.71	11.10.1996	B/E not received	Sl. No. 5 of SCN
6.	14,628.00	11.10.1996	B/E not received	Sl. No. 6 of SCN
7.	12,746.00	11.10.1996	B/E not received	Sl. No. 7 of SCN
8.	9,067.00	07.01.1997	B/E not received	Sl. No. 8 of SCN
9.	12,347.00	24.04.1995	B/E not received	Sl. No. 9 of SCN
10.	9,500.00	22.09.1995	B/E not received	Sl. No. 10 of SCN
11.	30,836.05	04.10.1995	B/E not received	Sl. No. 11 of SCN
12.	11,586.00	07.10.1997	B/E not received	Sl. No. 12 of SCN
TOTA L	7,67,983	BALANCE	6,82,499

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At the Appeal stage the Appellants have questioned the clarification/ confirmation dated 25.09.2003 of the AD, as having been received at their back and without them getting an opportunity to cross-examine the Bank officials. It is significant to note that the investigations were initiated on reference of letter no. EC.DEL.BEF(ED)/3758/99-00 dated 02.05.2000 from RBI. The Appellants have alleged that the AD failed to discharge its responsibilities under Chapter 7A. 20 (i) of the Exchange Control Manual, 1995. It is on reference of the Ld. Adjudicating Authority that the AD rechecked and FPA-FE-72-76/DLI/2010 Page 15 of 17

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confirmed that from among the 12 impugned remittances Bills of Entry were received for 2 part remittances and for one full remittance. Therefore, the letter under question did not cause any prejudice to the interest of the Appellants and in fact helped reduce the liability for which they had to meet the requirement of producing the Exchange Control Copy of Bills of Entry. We also note that the failure to permit the Appellants to cross-examine the Bank officials on merely this ground does not call for reversal of the Order and de novo enquiry. Thus, there is no violation of principles of natural justice. We do find that the Ld. Adjudicating Authority has reduced the total amount for which the remaining Bills of Entry had to be submitted from US $ 7,67,983.46 to US $ 6,82,489.95. He accordingly, imposed penalty of Rs. 2,04,00,000/- on the Appellant company and penalty of Rs. 50,00,000/- on each of the four individual Appellants.

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In view of the aforementioned discussions we do not find any reason to intervene with the impugned Order and therefore we dismiss the Appeals filed by the Appellant Company and by each of the four individual Appellants.

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