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2024 (11) TMI 798 - AT - FEMAFailure to utilize the foreign exchange for the purpose for which it was acquired - Contravention for acquisition of foreign exchange and for remittance of the same through various Banks in Mumbai to their overseas suppliers for import of goods but failed to bring any goods into India - It was without any general or special permission of the Reserve Bank of India (RBI). - whether there was negligence on the part of the appellants/banks for opening of the LCs and remittance of the foreign exchange despite non-submission of bills of entry and reminders and a report to the RBI? HELD THAT - The facts available on record shows receipt of the foreign currency against fake insurance claims which was never made by the Hamco Group of Companies with the Insurance Companies and was otherwise to be routed through the banks. The default by the appellants was realized and for that reason alone they subsequently wrote letters to insurance companies to find whether claims for insurance have been made. It was then informed that no claim was reported towards the insurance and specific reply of it has been given for Solo Industries Ltd. Al Sagar National Insurance Company, Dubai addressed the facts on 15.03.1999 that there was no claim reported by Solo Industries Ltd. or any of their consignees or settled by the said Company. The insurance company vide its letter dated 17.03.1999 also confirmed that the documents by Hamco Group of Companies were found to be forged and they were never issued by Al Sagar Insurance Company. They categorically denied receipt of claim or any settlement For the reason that the word abetment has not been defined under the Act of 1973, reference of Section 107 of IPC is given though it may not be relevant absolutely and in any case we find ingredients of the provisions are made out in this case. It cannot be pleaded that series of negligence and that too for years together would not lead to abetment. The appellants have pleaded that they were not under obligation to examine the documents, rather were under obligation to open the LCs and effect remittance. It has already been commented that they were not to act as post office to process documents for remittance but were under obligation to apply the mandate of Manual 1993 and the UCPDC. In the light of the aforesaid, we find that the case against the appellants was rightly taken up by the respondent and it is not only the financial institutions but its employees were found involved and for that penalized leaving others who were not found involved. Thus, we find that proper scrutiny of the facts has been made by the Special Director and we do not find any illegality therein in reference to the abetment of the financial institutions and its employees. In view of the above, this Tribunal may not cause interference in the order. State Bank of Patiala - The facts on the face of it would show that despite bill of entry not being submitted by Hamco for years together, the appellants continued to open LCs and made remittances and thus cause abetment by negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The appellant officers concerned in the process of opening LCs and issuing remittances are liable under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973. Canara Bank - The appellant bank has provided further details qua the transactions pertaining to the Hamco group of companies wherein advances against export performances have been adjusted by the bank. Further, the appellant bank in the case of Dravya received an inward remittance of Rs. 35,02,00,000 for which no purpose was explained rather the bank treated it just like an inward remittance without any explanation. In the case of Nariman Point, an inward remittance of Rs. 15610922 was received without any reason assigned to it. Thus, the appellants are liable for abetment and negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The appellant officers processed LCs and issued remittances are liable for abetment under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973. Vijaya Bank - The appellant bank has opened 24 LCs on behalf of Hamco though bill of entry was not submitted in respect of 21 LCs and remittances involving a total amount of US 17605540.45. Thus, despite no bill of entry submitted by the Hamco group of companies and despite non-fulfillment of the mandatory obligation by the Hamco group of companies, the bank continued to open LCs and remitted the amount. Thus, the bank is liable for abetment and negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The appellant officers concerned processed LCs and issued remittances are liable under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973. United Western Bank - Despite no bill of entry being submitted by the Hamco group of companies and despite non-fulfillment of the mandatory obligation on part of the Hamco group of companies, the bank continued to open LCs and remitted the amount. The appellant bank has also remitted US 34809212.77 to various parties against Merchanting Trade transactions. The bank has also opened 7 LCs in respect of Dravya involving 37 remittances totaling US 2138730.92. Thus, the bank is liable for abetment and negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The appellant officers processed LCs and issued remittances are also liable under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973. Oman International Bank - The appellant bank remitted US 22496721.85 on behalf of Hamco and US 896135 on behalf of Dravya to various parties against Merchanting Trade transactions without following the mandate of the Manual of 1993 and direction of UCPDC. Thus, the bank is liable for abetment and negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The appellant officers processed the LCs and issued remittances are liable under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973. Indusind Bank Ltd. - No bill of entry was submitted by the Hamco group of companies in continuity and despite therein fulfillment of the mandatory obligation on part of the Hamco group of companies, the bank continued to open LCs and remitted amount by way of collection bills. Thus, the bank is liable for abetment and negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The appellant officers concerned in the process of opening LCs and issuing remittances are liable under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973. Federal Bank Ltd. - The appellant bank has opened 30 LCs on behalf of Hamco however, the bill of entry was not submitted in respect of 27 LCs and 66 remittances involving a total amount of US 20390900.42. Thus, despite non-submission of bill of entry by the Hamco group of companies in continuity and absence of fulfillment of the mandatory obligation under the Manual of 1993 and direction of UCPDC on the part of the Hamco group of companies, the bank continued to open LCs and remitted the amount. Thus, the bank is liable for abetment and negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The appellant officers concerned processed LCs and issued remittances are liable under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973. SBI Commercial and International Bank - The appellant bank has opened 4 LCs on behalf of Hamcothough bill of entry was not submitted in respect of 3 LCs and 4 remittances involving a total amount of US 2033770/-. Thus, despite that no bill of entry was submitted by the Hamco group of companies and absence of fulfillment of the mandatory obligation given under the Manual of 1993 and UCPDC on part of the Hamco group of companies, the bank continued to open LCs and remitted the amount. Thus, the bank is liable for abetment and negligence in terms of Section 8(3) and Section 8(4) read with Section 64(2) of the Act of 1973. The officers concerned in the process of opening LCs and issuing remittances are liable under Section 8(3) read with Section 64(2) read with section 68 of the Act of 1973.
Issues Involved:
1. Alleged contravention of Sections 8(3) and 8(4) read with Section 64(2) of the Foreign Exchange Regulation Act, 1973. 2. Alleged aiding and abetment by banks and their employees in the contravention of the Act. 3. Failure to submit Bills of Entry and the implications thereof. 4. Remittance of foreign exchange based on fraudulent documents. 5. Alleged negligence and failure to exercise due diligence by banks and their employees. Detailed Analysis: 1. Alleged Contravention of Sections 8(3) and 8(4) Read with Section 64(2) of the Act: The case revolves around the alleged violation by Hamco Mining and Smelting Ltd. and other companies, which acquired foreign exchange for importing goods but failed to bring any goods into India. The contraventions were alleged under Sections 8(3) and 8(4) of the Foreign Exchange Regulation Act, 1973, which restricts the use of foreign exchange for purposes other than those for which it was acquired. The companies were also charged for not complying with Paragraphs 7C.1 and 7C.2 of Chapter 7 of the Exchange Control Manual, 1993. 2. Alleged Aiding and Abetment by Banks and Their Employees: The banks and their employees were accused of aiding and abetting the contravention of the Act by facilitating the remittance of foreign exchange without ensuring the submission of Bills of Entry. The Tribunal found that the banks failed to exercise due care and diligence, which amounted to abetment under Section 64(2) of the Act. The banks were penalized for their role in the remittance of foreign exchange based on fraudulent documents submitted by the companies. 3. Failure to Submit Bills of Entry and the Implications Thereof: The failure to submit Bills of Entry was a significant issue in the case. The banks continued to open Letters of Credit and remit funds despite the non-submission of Bills of Entry by the companies. The Tribunal noted that while the submission of Bills of Entry is subsequent to remittance, the banks should have ceased further remittances upon realizing the non-submission. The lack of Bills of Entry indicated that the goods were not imported, which was a violation of the Act. 4. Remittance of Foreign Exchange Based on Fraudulent Documents: The case highlighted that the banks remitted foreign exchange based on fraudulent documents submitted by the companies. The Tribunal found that the banks failed to scrutinize the documents properly, which led to the remittance of funds without actual import of goods. The Tribunal emphasized that the banks should have exercised greater care and diligence in dealing with the documents. 5. Alleged Negligence and Failure to Exercise Due Diligence by Banks and Their Employees: The Tribunal concluded that the banks and their employees were negligent in their duties by not verifying the authenticity of the documents and failing to ensure the submission of Bills of Entry. The banks' actions were deemed as abetment of the contravention of the Act. The Tribunal dismissed the appeals filed by the banks and upheld the penalties imposed by the Special Director. Conclusion: The Tribunal upheld the penalties imposed on the banks and their employees for aiding and abetting the contravention of the Foreign Exchange Regulation Act, 1973. The Tribunal found that the banks failed to exercise due diligence and continued to remit foreign exchange based on fraudulent documents, thereby abetting the contravention of the Act. The appeals were dismissed, and the penalties were affirmed.
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