1999 (9) TMI 984 - Board - FEMA

Summary

Issues Involved:

1. Imposition of penalties on managing partners when the firm is penalized.
2. Justification for penalties where goods were not delivered to foreign buyers.
3. Penalties for exports to Sierra Leone and the role of local currency payments.
4. Penalties for exports to Raxshire Ltd., London, and the role of RBI in releasing foreign exchange for legal action.
5. Admissibility and relevance of press reports as evidence.
6. Examination of written submissions and documentary evidence.
7. Interpretation and application of section 18(2) of the Foreign Exchange Regulation Act, 1973.
8. Adjudicating Officer's reliance on certain evidence and findings.
9. Charges under sections 9(1)(a) and 9(1)(c) of the Act.
10. Role of banks and foreign exchange regulations in the realization of export proceeds.

Detailed Analysis:

1. Imposition of Penalties on Managing Partners:
The judgment highlights that penalties imposed on managing partners in addition to the firm are inconsistent with the Board's and other judicial authorities' views. Specifically, a penalty of Rs. 1.37 crores on the managing partner was deemed unjustified, reducing the total penalty to Rs. 1.77 crores. The Board noted that section 68(1) could only be invoked against the managing partner, Ravi Prakash, and not other partners, thereby setting aside the penalty on Rattan Kumar.

2. Justification for Penalties Where Goods Were Not Delivered to Foreign Buyers:
The appellants argued that penalties should not be imposed where goods were not delivered to foreign buyers, as there would be no contravention of section 18(2). The Board agreed that the effective penalty should be less than Rs. 1 crore, considering the non-delivery of goods and the inability to repatriate payments due to foreign exchange regulations in Sierra Leone.

3. Penalties for Exports to Sierra Leone:
The appellants contended that the entire value of exports to Sierra Leone was paid in local currency, but repatriation was hindered by local exchange regulations. The Board found that the payments in local currency were confirmed by Punjab National Bank and that the appellants had taken all reasonable steps to recover the amounts. The adjudicating officer's findings were based on incorrect factual assumptions and were not sustainable.

4. Penalties for Exports to Raxshire Ltd., London:
The appellants were prevented from taking legal action against Raxshire due to the RBI's delay in releasing foreign exchange. The Board noted that the appellants had approached the RBI two years before Raxshire went into liquidation, but the RBI delayed their decision. The Board found that the appellants had taken all reasonable steps and could not be held guilty of contravention of section 18(2).

5. Admissibility and Relevance of Press Reports:
The Board dismissed the relevance of a press report submitted by the respondent as evidence, noting that press reports are not admissible as evidence. The decision to waive the pre-deposit was based on a prima facie case and the high amount of penalties, not on financial hardship.

6. Examination of Written Submissions and Documentary Evidence:
The Board noted that the adjudicating officer did not consider all the volumes of written submissions and documentary evidence submitted by the appellants. Specifically, Volume V, which contained crucial evidence such as insurance claims and criminal complaints, was overlooked.

7. Interpretation and Application of Section 18(2):
The Board emphasized that the determining factor under section 18(2) is whether the exporter has taken all reasonable steps to recover the payments. The failure to take all reasonable steps, not the non-realization of amounts, constitutes a contravention. The Board found that the appellants had taken all reasonable steps and could not be held liable under section 18(2).

8. Adjudicating Officer's Reliance on Certain Evidence and Findings:
The Board found that the adjudicating officer's reliance on certain evidence, such as the RBI's letter and statements from bank officials, was misplaced and selective. The Board emphasized the need to consider all evidence objectively and noted that the adjudicating officer's conclusions were based on incorrect factual assumptions.

9. Charges Under Sections 9(1)(a) and 9(1)(c):
The Board found that the charges under sections 9(1)(a) and 9(1)(c) were not tenable. The payment made by Toufic Habulla to BCCI was not at the instance of SRC Industries, and the acknowledgment of debt did not create a right to receive payment. The Board also noted that the agreement with Farage & Sons was not acted upon and was subject to the implied term of RBI's permission under section 47(2).

10. Role of Banks and Foreign Exchange Regulations:
The Board highlighted the role of banks and foreign exchange regulations in the realization of export proceeds. The appellants faced difficulties due to the non-cooperation of their bankers and the RBI's delay in granting permissions. The Board found that the appellants had made reasonable efforts and could not be held liable for the non-realization of amounts.

Conclusion:
The Board allowed all the appeals, setting aside the impugned order and the penalties imposed on the appellants. The findings of contravention of sections 18(2), 9(1)(a), and 9(1)(c) were not sustainable based on the evidence and legal interpretations. The judgment underscores the importance of considering all reasonable steps taken by exporters and the role of regulatory authorities in such cases.