2010 (11) TMI 611 - HC - FEMA

Whether any requisite and reasonable steps had been taken by the appellant to recover the export proceeds from the overseas buyers - specific charge against the appellant was that for the non-repatriating the outstanding proceeds by way of foreign exchange to the country within the stipulated period, the appellant contravened the provisions of Section 18(2) read with 18(3) of the FERA - It is, no doubt the appellant was continuously in touch with their Agent- Commercial at France to take steps to recover the amount and finally the Agent-Commercial expressed his inability to recover the amount - according to the appellant, further steps such as filing a suit at France, contacting the Indian Embassy at foreign countries, etc. would amount to expending huge amount of good money for bad dues whether the correspondence produced by the appellant that had been exchanged between themselves and their Agent-Commercial and the Legal Representative are sufficient enough to come to the conclusion that the appellant had taken necessary and reasonable steps to recover the amount or not - any amount of correspondence sent by the appellant to the foreign buyers or to the Legal Representative or to the Agent-Commercial, is only an internal correspondence - The letter correspondence between the appellant and their foreign buyers is not sufficient enough to prove the reasonableness of the appellant to secure the foreign proceeds within the purview of the Act - civil miscellaneous appeals are dismissed

Summary

Issues Involved:
1. Non-realization of export proceeds.
2. Compliance with Section 18(2) and 18(3) of FERA.
3. Reasonableness of steps taken to recover export proceeds.
4. Necessity of obtaining Reserve Bank of India's (RBI) extension for realization period.

Issue-wise Detailed Analysis:

1. Non-realization of Export Proceeds:
The appellant firm, an exporter of cotton products, failed to realize the outstanding export proceeds amounting to USD 136,804.52 from shipments made to companies in UAE and France during 1996-97. Despite realizing a partial amount, the appellant could not recover the remaining dues within the stipulated period, leading to allegations of contravening Section 18(2) read with Section 18(3) of the Foreign Exchange Regulation Act (FERA), 1973.

2. Compliance with Section 18(2) and 18(3) of FERA:
The Directorate of Enforcement issued a show cause notice on 7-1-2000 for non-realization of export proceeds, proposing adjudication proceedings for violation of FERA. The adjudication order dated 13-10-2000 found the appellant and its Director guilty, imposing penalties of Rs. 3,00,000/- on the company and Rs. 1,00,000/- on the Director under Section 50 of FERA. The Appellate Tribunal for Foreign Exchange upheld this order on 30-10-2007.

3. Reasonableness of Steps Taken to Recover Export Proceeds:
The appellant argued that the non-repatriation of export proceeds was neither willful nor deliberate, citing the bankruptcy of the foreign buyers in France and the closure of the partnership firm in UAE due to the death of a partner. The appellant provided various correspondences with their Agent-Commercial and Legal Representative in France as evidence of their efforts to recover the dues. However, the respondent contended that these internal correspondences were insufficient to prove that reasonable steps were taken. The court noted that merely based on the internal correspondence, it cannot be construed that the appellant had taken reasonable steps to secure the amount.

4. Necessity of Obtaining Reserve Bank of India's (RBI) Extension for Realization Period:
The respondent emphasized that under Rule 8 of FERA Rules, the full export value must be realized within six months, and the appellant should have sought an extension from the RBI if they were unable to do so. The appellant did not approach the RBI for an extension, which the respondent argued demonstrated a lack of reasonable steps to recover the export proceeds. The court agreed, stating that the appellant's failure to obtain an extension from the RBI could not be justified and that the appellant should have complied with this legal requirement.

Conclusion:
The court concluded that the appellant did not take all reasonable steps to recover the export proceeds, as required under Section 18(3) of FERA. The internal correspondences were deemed insufficient, and the failure to seek an extension from the RBI was a significant oversight. The court upheld the adjudication order and the Appellate Tribunal's decision, dismissing the civil miscellaneous appeals and confirming that no substantial question of law was involved. The court emphasized the importance of adhering to the legal requirements to ensure the proper utilization of the country's foreign exchange resources.