2022 (6) TMI 165 - HC - FEMA

Offence under FERA - Non-realization of payment towards exported goods - reasonable steps to be taken for securing the sale proceeds of exports or not? - concerned buyer in France became bankrupt and therefore some of the export proceeds against the said consignments could not be realized - HELD THAT - Any person effecting an export of goods is also responsible rather duty bound to also effect the securing of proceeds from such export/sale. The only exception as per the language of the provision is permission from the RBI which if obtained may lead to granting of the leverage of not securing the proceeds within the stipulated and prescribed period. Further sub-section 3 makes a presumption against the person who has not been able to secure the proceeds from exports that he/she has not taken all reasonable steps so as to recover the amount to be realized from the proceeds of sale. The purpose behind these provisions becomes clearer when seen from the standpoint of the legislature and its intention and purpose of bringing into the Act into existence It is evident from the objective as specified in the preamble of the Act that the need at the time of enactment of the Act was to accommodate trade deficit with the aim to also conserve foreign exchange resources in the Country. The purpose behind the Act was to ease out the foreign exchange crunch that the Country was going through. The objective therefore was to make such enabling provisions to facilitate due proper and timely realization of the amount that is accrued by foreign buyer towards goods exported and to also facilitate regularized foreign exchange. Whether the steps taken by the appellant were reasonable steps as have been stipulated under Section 18(3) of the FERA? - There are no established principles or guidelines laid down by law to the question as to what amounts to reasonable steps under Section 18(3) of the FERA and therefore the same has to be established in light of the facts and circumstances of each case. In the instant matter the appellant upon non-realization of payment towards exported goods made attempts to communicate with the buyer in France. The following communications were made by the appellant as have been enlisted in her reply dated 26th March 2004 to the Show Cause Notice by the respondent no. 2/ED As it is found that the appellant undertook the basic and primary measures of contacting and communicating with the foreign buyers and approaching the RBI after the lapse of the stipulated time period however these fundamental steps in themselves were not sincere serious and sufficient attempts to effectively cause the recovery of the proceeds of sale. Another relevant factor to be considered is that the Appellate Tribunal reduced the penalty imposed upon the appellant by about 60 percent that is from Rs. 25, 00, 000/- to Rs. 15, 00, 000/- which in itself is a relief granted to the appellant despite having been found guilty of contravening the provisions of the FERA. In light of the facts and circumstances contentions raised arguments advanced and judgments cited it is found that there is no error in the impugned order dated 30th August 2016 passed by the Appellate Tribunal in Appeal No. 138/2007. The Tribunal has rightly imposed the penalty upon the appellant and this Court does not find any substantial ground or cogent reason to invoke its extraordinary jurisdiction and interfere with the said order. Accordingly the instant Criminal Appeal is dismissed.

Summary

Issues Involved:
1. Contravention of Section 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973 (FERA).
2. Adequacy of steps taken by the appellant to recover export proceeds.
3. Impact of Reserve Bank of India (RBI) write-off on the penalty imposed.
4. Applicability of precedents and judicial principles on the case.

Issue-wise Detailed Analysis:

1. Contravention of Section 18(2) and 18(3) of the FERA:
The appellant was accused of contravening Section 18(2) and 18(3) of the FERA by failing to secure the export proceeds amounting to USD 3,52,784.40 and INR 39,000/-. The Directorate of Enforcement (ED) issued a show cause notice alleging that the appellant's company did not take adequate steps to secure the payment for goods exported to a French company, which later went bankrupt.

2. Adequacy of Steps Taken by the Appellant to Recover Export Proceeds:
The appellant argued that reasonable steps were taken to recover the export proceeds, including writing letters to the foreign buyer, engaging advocates in Paris, and contacting the Embassy of India in Paris. However, the court found that these steps were insufficient and did not meet the "reasonable steps" requirement under Section 18(3) of the FERA. The court emphasized that mere communications and internal correspondences do not equate to taking all reasonable steps for recovery. The appellant's failure to pursue civil remedies in France and the non-execution of a decree obtained by the appellant's sister concern further demonstrated a lack of adequate efforts.

3. Impact of RBI Write-off on the Penalty Imposed:
The appellant contended that the RBI had written off the outstanding GRs with the due permission, which should absolve the appellant of any liability. However, the court noted that the RBI's write-off was based on technical grounds, specifically that the bills were less than Rs. 2,00,000/- and more than ten years old. This write-off did not consider the merits of the appellant's case or the adequacy of steps taken for recovery. The court held that the RBI's technical write-off does not negate the appellant's obligation under Section 18(2) and 18(3) of the FERA.

4. Applicability of Precedents and Judicial Principles:
The appellant relied on various judicial precedents, including judgments from the Calcutta High Court and the Delhi High Court, to argue that the penalty should be set aside. However, the court distinguished these cases based on their facts and found that the appellant's situation did not warrant a similar outcome. The court also referred to the Supreme Court's judgment in Bharat Carpets vs. Directorate of Enforcement, which emphasized the importance of taking adequate steps for repatriation of foreign exchange within the prescribed period.

Findings and Analysis:
The court concluded that the appellant did not take sufficient and reasonable steps to recover the export proceeds, as required under Section 18(3) of the FERA. The communications made by the appellant were deemed inadequate, and the failure to pursue legal remedies in France further weakened the appellant's case. The court upheld the penalty imposed by the Appellate Tribunal, noting that the reduction of the penalty from Rs. 25,00,000/- to Rs. 15,00,000/- was already a significant relief. The court dismissed the appeal, finding no substantial ground to interfere with the Tribunal's order.

Conclusion:
The court affirmed the Appellate Tribunal's decision to impose a penalty on the appellant for contravening the provisions of the FERA. The appellant's steps to recover the export proceeds were found to be inadequate, and the RBI's technical write-off did not absolve the appellant of liability. The appeal was dismissed, and the penalty of Rs. 15,00,000/- was upheld.