2002 (4) TMI 825 - HC - Companies Law

Issues Involved:
1. Violation of Section 18(2) by changing the terms of payment of the bill from D.P. to D.A.
2. Whether reasonable steps were taken by the exporter.
3. Whether the availability of funds in the pipeline system would amount to reasonable steps.
4. Burden of proving reasonable steps and the legal presumption under Section 59.
5. Admissibility and reliance on statements made under Section 40.
6. Payments made by one non-resident to another non-resident on the instruction of a resident violating Section 9(1)(a).

Detailed Analysis:

1. Violation of Section 18(2) by changing the terms of payment of the bill from D.P. to D.A.:
The court found that the exporter had contravened Rule 9 of the Foreign Exchange Regulation Rules by changing the terms of payment from D.P. (Documents against Payment) to D.A. (Documents against Acceptance) without the permission of the RBI. This change allowed the importer to clear the goods without making payment, leading to non-realization of export proceeds. The court noted that the practice of continuous exports from 1978 to 1983 without corresponding payments indicated a clear violation of Section 18(2).

2. Whether reasonable steps were taken by the exporter:
The court rejected the exporter's claim that reasonable steps were taken to realize the export proceeds. The court found no evidence of reasonable steps being taken from 1978 to 1983, except for a claim of deposit in local currency after the receipt of the show-cause notice. The court emphasized that changing the terms of payment from D.P. to D.A., accepting a lesser amount in local currency, and failing to repatriate any amount till date did not constitute reasonable steps under Section 18(3).

3. Whether the availability of funds in the pipeline system would amount to reasonable steps:
The court dismissed the exporter's argument that the remittance of export value in local currency and the pipeline system in Sierra Leone absolved them of liability. The court found no factual basis for the claim that the amounts were available in the pipeline. The RBI's letter indicated that the payment in local currency was far less than claimed by the exporter, and the court held that the exporter's actions were detrimental to the country's foreign exchange interests.

4. Burden of proving reasonable steps and the legal presumption under Section 59:
The court held that the burden of proving reasonable steps lay with the exporter, and they failed to discharge this burden. The court criticized the Board for not applying the legal presumption under Section 59 in favor of the department, leading to an illegal and perverse finding.

5. Admissibility and reliance on statements made under Section 40:
The court found that the statements made by Shri K.A. Sekar, an officer of Punjab National Bank, under Section 40 were admissible and reliable. The court noted that these statements provided evidence of the exporter's failure to realize export proceeds and their involvement in unauthorized transactions.

6. Payments made by one non-resident to another non-resident on the instruction of a resident violating Section 9(1)(a):
The court concluded that the payment made by H.A. Farag & Sons Ltd., Banjul to Toufic Huballa, another non-resident, on the instructions of the exporter without RBI's permission, violated Section 9(1)(a). The court highlighted that such payments were made at the instance of the exporters, constituting a clear contravention.

Conclusion:
The court allowed the appeals, finding that the exporters violated Sections 18(2) and 9(1)(a) of the Act. The exporters failed to take reasonable steps to realize export proceeds, and their actions were detrimental to the country's foreign exchange interests. The court imposed exemplary costs on the exporters and directed the appellants to proceed against them in accordance with the law.

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