1996 (2) TMI 450 - HC - Companies Law

Issues Involved:
1. Contravention of Section 12(2) of the Foreign Exchange Regulation Act, 1947.
2. Nature of the export (consignment basis vs. outright sale).
3. Repatriation of the full amount payable by the foreign buyer.
4. Deductions for commission and expenses without Reserve Bank permission.
5. Applicability of precedents and judicial interpretations.

Detailed Analysis:

1. Contravention of Section 12(2) of the Foreign Exchange Regulation Act, 1947:

The appellant-firm was charged with contravening Section 12(2) of the Foreign Exchange Regulation Act, 1947, by not repatriating the full declared export value of Rs. 56,783 for nine consignments of sharkfins and fishmaws exported to Singapore during 1970-71. The firm realized only Rs. 20,690.97 and failed to repatriate the balance of Rs. 36,092.03. Both the Enforcement Directorate and the Foreign Exchange Regulation Appellate Board levied a penalty of Rs. 3,600 for this contravention.

2. Nature of the Export (Consignment Basis vs. Outright Sale):

The appellant contended that the exports were made on a consignment basis and not as outright sales. The values mentioned in the G.R. 1 forms were not the real values but were declared to satisfy customs authorities. The firm argued that the consignee in Singapore sold the goods and repatriated the sale proceeds after deducting commission and expenses. The court examined the G.R. 1 forms and found that the term "seller" was scored out, indicating that the exports were indeed on a consignment basis.

3. Repatriation of the Full Amount Payable by the Foreign Buyer:

The court emphasized that under Section 12(2) of the old Act, only the "full amount payable by the foreign buyer" needed to be repatriated, not the "full export value" as required under the new Act. The court referred to precedents, including the Supreme Court decision in Enforcement Directorate v. Krishnaswamy, which clarified that the amount payable by the foreign buyer is the actual price agreed upon and not any inflated or fictitious value declared in the invoices.

4. Deductions for Commission and Expenses Without Reserve Bank Permission:

The appellant claimed deductions for the consignee's commission and expenses without obtaining prior permission from the Reserve Bank of India. The court disagreed with the Kerala High Court's view in N. A. Paul and Co. v. Foreign Exchange Regulation Appellate Board, which suggested that no permission was necessary for such deductions. The court emphasized that the full amount payable by the foreign buyer must be repatriated, and any deductions for commission and expenses require Reserve Bank permission. The court highlighted the risk of collusion between consignors and consignees to inflate deductions, thereby depriving the nation of legitimate foreign exchange.

5. Applicability of Precedents and Judicial Interpretations:

The court referred to several precedents, including Venkata Subbu v. Director of Enforcement, Krishnaswamy v. Government of India, and T. K. M. Company v. Foreign Exchange Regulation Appellate Board, to support its interpretation of Section 12(2). The court noted that in consignment sales, the declared value in G.R. 1 forms is only approximate, and the actual sale proceeds realized must be repatriated. The court also cited the Supreme Court's observation in M. G. Wagh v. Jay Engineering Works Ltd., emphasizing the importance of ensuring that the nation does not lose foreign exchange.

Conclusion:
The court concluded that the appellant had contravened Section 12(2) of the Foreign Exchange Regulation Act, 1947, by not obtaining Reserve Bank permission for the deductions claimed. However, considering the nature of the contravention, the court reduced the penalty from Rs. 3,600 to Rs. 500. The appeal was allowed to this extent, with no order as to costs.

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