2010 (8) TMI 720 - HC - FEMA

Pre-deposit undue hardship - non realization of export consideration - reasonable steps - contravention of the provisions of FEMA - Mere financial difficulties cannot be said to be undue hardship . when the Appellate Tribunal has judicially exercised its discretion, High Court/Appellate Court will not interfere with the exercise of discretion, which has been judicially exercised. The views expressed by us in this order shall not be construed as expression of opinion on the merits of the matter, Civil Miscellaneous Appeals are dismissed, there is no order as to costs, consequently, the connected miscellaneous petitions are closed

Issues Involved:
1. Dispensation of pre-deposit requirement.
2. Imposition of penalty under FEMA.
3. Reasonable steps for realization of export proceeds.
4. Judicial discretion in exercising pre-deposit conditions.
5. Undue hardship and financial difficulty.

Issue-wise Analysis:

1. Dispensation of Pre-deposit Requirement:
The appeals arose from the Appellate Tribunal for Foreign Exchange's order rejecting applications for dispensation of pre-deposit and directing full payment of the penalty within 30 days. The appellants argued that the penalty imposed would cause "undue hardship" and that their clean record of exports and significant foreign exchange earnings should be considered. The Tribunal, however, emphasized the need to safeguard revenue interests and found that the appellants failed to demonstrate undue hardship beyond mere financial difficulty.

2. Imposition of Penalty under FEMA:
The appellants, exporters of garments, were penalized for failing to realize and repatriate foreign exchange as required under Sections 7 and 8 of FEMA, 1999. The Special Director imposed penalties of Rs. 40,00,000/- and Rs. 50,00,000/- on the firms, and Rs. 10,00,000/- each on the Managing Partner/Director. The Tribunal upheld these penalties, noting that they were significantly less than the outstanding export proceeds and within the adjudicating authority's discretion.

3. Reasonable Steps for Realization of Export Proceeds:
The appellants contended that they had taken reasonable steps, including notifying the RBI and attempting to recover proceeds from an agent detained under COFEPOSA. The Tribunal, however, found that the appellants failed to demonstrate reasonable steps to realize the export proceeds, as required by FEMA. The High Court refrained from expressing opinions on these factual matters, leaving them for the Tribunal's consideration during the appeal hearings.

4. Judicial Discretion in Exercising Pre-deposit Conditions:
The Tribunal's discretion in requiring pre-deposit was highlighted. Section 19 of FEMA allows for dispensation of pre-deposit if it causes "undue hardship," but this must be balanced with safeguarding revenue interests. The Tribunal's decision to require full pre-deposit was deemed a judicial exercise of discretion, considering the appellants' failure to show undue hardship and the importance of maintaining foreign exchange reserves.

5. Undue Hardship and Financial Difficulty:
The appellants argued that the pre-deposit requirement would cause undue hardship, citing financial difficulties and their history of foreign exchange earnings. However, the Tribunal and the High Court emphasized that mere financial difficulty does not constitute undue hardship. The term "undue hardship" implies a burden disproportionate to the requirement, which the appellants failed to establish. The High Court upheld the Tribunal's decision, noting that financial hardship alone does not warrant dispensation of pre-deposit.

Conclusion:
The High Court dismissed the appeals, affirming the Tribunal's order for full pre-deposit of penalties. The appellants were directed to comply within 30 days, with no order as to costs, and the connected miscellaneous petitions were closed. The judgment underscored the importance of judicial discretion, safeguarding revenue interests, and the stringent standards for proving undue hardship under FEMA.

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