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2024 (6) TMI 559 - AT - FEMAContravention of the provisions of Sections 8(1), 48 and 49 r.w.s. 72(c) of the Foreign Exchange Regulation Act, 1973 ('FERA) - Imposition of Penalty by the Adjudicating Authority - culpability of the appellant company - delivery of the cargo to Dubai instead of Russia - formation gathered by the Directorate that certain exporters were abusing the policies governing exports from India to Russia against repayment of Rupee credits, thereby causing large-scale loss of foreign exchange to the exchequer - As alleged that the Russian buyers were non-existent. HELD THAT - Upon perusal, the letters in question appear to be authentic in all respects. As pointed out by the learned adjudicating authority, they are on the appellant company s letterhead, mention all the essential details such as the shipment container number, voyage number, name of the like vessel etc. The charge of forgery is a serious one under law. No facts have been placed before us to indicate that any criminal complaint was filed by the appellant against the shipping company for the alleged forgery and if so, what was the fate of the same. Adjudicating authority has also referred to the fact that delivery of the cargo to Dubai instead of Russia was in fact, against the commercial interest of the shipper as it would result in reduced freight charges, unless, of course, the shipping company, was in collusion with the exporter and benefitted by diverting the cargo to a hard currency area in order to generate hard foreign currency in Dubai on the one hand and at the same time also realised payment in rupees under the state credit scheme for export to Russia. As also taken note of the observation of the learned adjudicating authority that in the event the exporter really intended that the goods should be delivered at Moscow only and the goods in fact did not reach Moscow but were delivered at Dubai, the logical course of action on the part of the exporter (the appellant company) or the importer (M/s Arina, Moscow) ought to have filed a case against the shipping company for claiming damages, but no such action was taken by either of them in this case. He has further observed that all the three parties involved, namely, the shipper/exporter, the shipping agent, and the consignee appear to have had no grievances or complaints against one another until the initiation of enquiries by the respondent Directorate. From all these facts, it cannot be ruled out in our view that all three parties were complicit in the entire episode. Alternately, it is also possible that the Russian importers, whose very existence has been doubted by the respondent Directorate, are not even genuine parties and were mere paper entities. It is evident that the blame game between the exporter and the shipping agent started only after investigations were initiated into the alleged fraud. Therefore, not much credence can be given to the appellant s submission laying all the blame at the shipping company s door. We do not, however, wish to express any final view on the matter as the present case pertains only to the shipper/exporter company (and its Director) and the other two parties in the equation, namely, the shipping agent and the Russian importer are not before us in the present appeals. As having completed all the paperwork for export to Russia and loaded the consignments for shipment, the appellant company itself superseded its earlier instructions by issuing fresh instructions by way of the letters in question to deliver the cargo at Dubai to M/s Indem General Trading (LLC), Dubai. In the above view of the matter, none of the other issues raised by the appellants holds any merit in our view since export to Russia, the key precondition under the RBI Circular for drawing funds under the state credit scheme, was not complete as against the appellant company. The inability expressed by the appellant company vide its letter dated 29.12.2001 to furnish copies of the L/Cs, contract and correspondence with the foreign buyers, and other export documents on the pretext that the same could not be traced out because of shifting of the office premises further strengthens our view in the matter. We are of the view that the culpability of the appellant company is adequately established on the preponderance of probabilities, rendering them liable for imposition of penalty under FERA, 1973. The learned adjudicating authority was of the view that important export deals of such nature are normally decided in the Board meetings in the presence of all directors. Viewed in this perspective, the culpability for the transactions in question converge at the level of the directors of the company. Accordingly, he held the three directors of the company, namely, Shri Arun Kumar, Shri Prasanta Kumar Ray and Shri Amir Akbar Khan liable for the violations in terms of Section 68 of FERA, 1973 in relation to the appellant company, M/s S.S.K. Exports Ltd. As already stated, in this order, we are only concerned with one of the three directors, namely, Shri Arun Kumar. We find that no separate arguments have been presented challenging the penalty imposed upon Shri Arun Kumar over and above the arguments and contentions raised on behalf of the company which we have already dealt with in detail in this order. Penalty imposed upon the director was a direct consequence of the penalty imposed upon the company. No material has been placed before us to indicate that Shri Arun Kumar, Director, was not in charge of, and was not responsible to the company for the conduct of business of the company at the relevant time. Accordingly, we hold that Shri Arun Kumar, Director of M/s S.S.K. Exports Ltd., is also liable for imposition of penalty in view of the aforementioned Section 68 of FERA, 1973. Further, considering the nature of the contravention and the amount involved, we are of the view that the amount of penalty imposed is reasonable. Accordingly, we confirm the penalty of Rs. 20,00,000/- imposed upon the company which is the appellant before us as well as the penalty of Rs. 5,00,000/- imposed upon its Director Shri Anup Kumar, the appellant.
Issues Involved:
1. Alleged contravention of FERA, 1973 by M/s S.S.K. Exports Ltd. 2. Liability of the Director, Shri Anoop Kumar, u/s 68 of FERA, 1973. 3. Validity of the penalty imposed by the adjudicating authority. 4. Legitimacy of the diversion of consignments to Dubai. 5. Applicability of RBI Circular and its breach. Summary: 1. Alleged Contravention of FERA, 1973 by M/s S.S.K. Exports Ltd. The core issue was the alleged contravention of Sections 8(1), 48, and 49 read with Section 72(c) of FERA, 1973 by M/s S.S.K. Exports Ltd. The company was accused of violating the RBI Circular by diverting consignments meant for Moscow to Dubai and realizing proceeds through the Rupee Credit Scheme meant solely for exports to Russia. It was found that the goods were indeed diverted to Dubai, a hard currency area, and no evidence was provided to show further shipment to Moscow. 2. Liability of the Director, Shri Anoop Kumar, u/s 68 of FERA, 1973 Shri Anoop Kumar, Director of M/s S.S.K. Exports Ltd., was held liable u/s 68 of FERA, 1973. The adjudicating authority noted that no attempt was made to distinguish the roles of the Directors, and it was concluded that important export deals are typically decided in Board meetings. Thus, the culpability converged at the level of the Directors. 3. Validity of the Penalty Imposed by the Adjudicating Authority The adjudicating authority imposed a penalty of Rs. 20,00,000/- on M/s S.S.K. Exports Ltd. and Rs. 5,00,000/- on Shri Anoop Kumar. The appellants contended that the penalty was excessive and based on conjecture. However, the Tribunal confirmed the penalties, deeming them reasonable given the nature of the contravention and the amount involved. 4. Legitimacy of the Diversion of Consignments to Dubai The appellants argued that the diversion was based on forged instructions and that they had fulfilled all obligations by negotiating the Bills of Lading. The adjudicating authority, however, found the letters requesting diversion to be authentic and noted that no legal action was taken by the appellants against the shipping company for the alleged forgery. The Tribunal agreed with these findings, concluding that the diversion was indeed instructed by the exporter. 5. Applicability of RBI Circular and Its Breach The appellants argued that the RBI Circular did not apply to them and that there was no mandate for the goods to be consumed in Russia. The Tribunal, however, found that the diversion of goods to Dubai and the realization of proceeds through the Rupee Credit Scheme constituted a clear violation of the RBI Circular and FERA, 1973. Conclusion: The Tribunal dismissed the appeals, confirming the penalties imposed on M/s S.S.K. Exports Ltd. and its Director, Shri Anoop Kumar, for contravening the provisions of FERA, 1973 and the RBI Circular. The Tribunal found that the appellants were culpable based on the preponderance of probabilities and that the penalties were reasonable given the nature of the contravention.
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