2008 (6) TMI 579 - HC - FEMA

Summary

Issues Involved:
1. Violation of Section 18(2) and Section 18(3) of the Foreign Exchange Regulation Act, 1973.
2. Applicability of the Appellate Tribunal's earlier decisions.
3. Presumption of non-recovery of export proceeds under Section 18(3).

Summary:

Issue 1: Violation of Section 18(2) and Section 18(3) of the Act

This appeal u/s 35 of the Foreign Exchange Management Act, 1999 read with Section 49 thereof and Section 54 of the Foreign Exchange Regulation Act, 1973, challenges the order dated 09.10.2007 by the Appellate Tribunal for Foreign Exchange, which upheld the imposition of a penalty of Rs. 3 Lacs on the appellant for violating Section 18(2) read with Section 18(3) of the Act. The appellant, a former Director of M/s Kwality Jewellers (India) Pvt. Ltd., argued that he had resigned from the company on 01.06.1995 and was not responsible for the non-realisation of export proceeds. However, the adjudicating authority and the Appellate Tribunal found that sufficient efforts were not made to realise the amounts, and the appellant was held responsible for the outstanding proceeds since the exports occurred during his tenure as Director.

Issue 2: Applicability of the Appellate Tribunal's earlier decisions

The appellant contended that the Appellate Tribunal ignored its earlier decisions, specifically the two-member Bench decision in "M/s Leatherage, Kanpur v. Director of Enforcement," which held that no violation of Section 18(2) occurs if an application for extension or offset of export proceeds is pending before the RBI. The appellant argued that the Tribunal should have followed this precedent. However, the Tribunal dismissed this argument, noting that the facts of the present case differed significantly from those in "M/s Leatherage, Kanpur," where bonafide efforts to realise the debt were evident.

Issue 3: Presumption of non-recovery of export proceeds under Section 18(3)

The court highlighted Section 18(3) of FERA, which presumes that a person has not taken reasonable steps to recover payment for goods if the prescribed period has expired without payment. The appellant failed to rebut this presumption. The court noted the close personal and business relationship between the appellant and the importer, and the lack of meaningful efforts to recover the export proceeds. The appellant's own documents contradicted his claims about the timing of his resignation and his involvement in the company's operations. The court concluded that the appellant's complicity in the failure to realise the export proceeds was evident.

Conclusion:

The appeal was dismissed with costs of Rs. 10,000/-, affirming the Appellate Tribunal's decision and the penalties imposed for the violation of Section 18(2) and Section 18(3) of the Act.