2009 (4) TMI 915 - HC - FEMA

Summary

Issues Involved:
1. Abuse of Process of Law
2. Reasonable Steps for Recovery
3. Adequacy of Opportunity Notice
4. Role of Directors in the Complaint
5. Compliance with RBI Guidelines
6. Application of Section 18 of FERA

Detailed Analysis:

1. Abuse of Process of Law:
The petitioners argued that the complaint filed under Section 56 of FERA was a gross abuse of the process of law, filed hastily to meet the deadline of 31.05.2002. The court found that the respondents had not adequately considered the petitioners' communications and steps taken for recovery, thus constituting an abuse of process.

2. Reasonable Steps for Recovery:
The petitioners demonstrated that they had taken reasonable steps to recover the outstanding export proceeds, including filing civil suits and obtaining decrees against foreign buyers. The court noted that Section 18(2) and (3) of FERA requires exporters to take reasonable steps for recovery, not necessarily to ensure recovery. The court found that the petitioners had fulfilled this requirement.

3. Adequacy of Opportunity Notice:
The petitioners contended that the opportunity notice issued under Section 61(2) of FERA was devoid of material particulars and did not consider the several correspondences exchanged. The court agreed, stating that the opportunity notice is a statutory requirement and not an empty formality. The notice issued was found to be insufficient and lacking in material particulars.

4. Role of Directors in the Complaint:
The complaint lacked material particulars regarding the role of the directors, who were made parties to the complaint. The court referenced the decision in S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla & Anr., concluding that the complaint did not adequately specify the directors' involvement, thus failing to meet legal standards.

5. Compliance with RBI Guidelines:
The petitioners argued that the outstanding amount was approximately Rs. 1.40 crores, not Rs. 2.0 crores as mentioned in the complaint. The court noted that the RBI guidelines dated 05.07.2001 stipulated prosecution for non-realization of export proceeds worth Rs. 2.0 crores or more. The court found that the department failed to follow these guidelines, as the outstanding amount was indeed less than Rs. 2.0 crores.

6. Application of Section 18 of FERA:
The court emphasized that Section 18(2) and (3) of FERA requires exporters to take reasonable steps for recovery. The petitioners had provided detailed information and documentation of the steps taken, including legal actions and recoveries made. The court concluded that the petitioners had taken all reasonable steps as required by law.

Conclusion:
The court quashed the complaint bearing No. 361/2002, finding that the petitioners had taken all reasonable steps for recovery, the opportunity notice was inadequate, and the complaint did not comply with RBI guidelines. The court also noted the lack of material particulars regarding the directors' roles and concluded that proceeding with the complaint would be a futile exercise. No order as to costs was made.