2009 (5) TMI 399 - HC - FEMA

Penalty- The appellant aggrieved from the passed by the Assistant Director, Enforcement Directorate, Agra, whereby a penalty was imposed upon the petitioner on account of not taking adequate steps to recover the money from a foreign buyer. The Assistant Director imposed a penalty of Rs.90,000/- which was reduced to Rs.60,000/- by the first Appellate Authority. Held that- as (i) No documents relating to liquidation of foreign buyer company has been filed by the appellant (ii) When RBI asked the appellant to obtain the confirmation from Indian High Commission to the effect that foreign buyer was no more in business, this requirement was also not complied with by the appellant. (iii) Even the requirement of the authorized banker to approach RBI for extension of time was not comply with by the appellant so as to take time for realization of export proceeds. (iv) Regarding correspondence between SBI and Barclays Bank the Appellate Board has also goes to show that the payments were made not by the foreign buyer because the goods were found to be faulty and further it also became clear that the matter was settled amicably by the appellant with the foreign buyer. In these circumstances, the Appellate Authority has rightly held the appellant guilty of the provisions contained under Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973 and has rightly punished the appellant though by reducing the amount of penalty. No infirmity is found. The appeal is accordingly dismissed.

Summary

Issues:
1. Scope and ambit of the phrase 'reasonable steps' under Section 18(3) of FERA.
2. Error in law by FERA Appellate Board in assessing reasonableness of steps taken by the appellant.
3. Error in law by FERA Appellate Board regarding liquidation report of the appellants.

Analysis:
1. The appellant raised questions concerning the interpretation of 'reasonable steps' under Section 18(3) of FERA. The appellant argued that the steps taken were reasonable as they were in touch with relevant authorities and acted on their advice. The appellant also highlighted the dissolution of the foreign buyer company as a mitigating factor.

2. The Appellate Tribunal assessed the appellant's actions and found them lacking. The appellant failed to provide necessary documents related to the liquidation of the foreign buyer company despite assurances. Moreover, the appellant did not comply with requests from RBI and the authorized banker to obtain confirmations and extensions, indicating a lack of proactive measures.

3. The appellant contended that the liquidation report from JKR Credit Management Bureau supported their case. However, the court found the letter insufficient as it did not directly address the liquidation of the foreign buyer but rather highlighted the non-traceability of the company, raising concerns of potential fraud.

4. Under Sections 18(2) and 18(3) of FERA, exporters must make reasonable efforts to recover outstanding export proceeds within the prescribed period. Failure to do so raises a rebuttable presumption of contravention. In this case, the appellant failed to prove sincere efforts to recover payments, leading to the imposition of a penalty.

5. The court upheld the decision of the Appellate Tribunal, emphasizing the appellant's failure to provide essential documentation, seek necessary approvals, and take proactive steps to recover export proceeds. The penalty was reduced but upheld, underscoring the appellant's liability for not fulfilling obligations under FERA.

This comprehensive analysis covers the key legal issues raised in the judgment, providing a detailed examination of the appellant's arguments and the court's findings.