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TMI Blog1999 (9) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... he total penalty straightaway gets reduced to ₹ 1.77 crores. He further submitted that there was no justification for imposing penalties where goods were not delivered to foreign buyers as in that case, there is no contravention of section 18(2). He further submitted that, thus, the effective penalty is less than a crore rupees. He further submitted that there was no case for imposition of penalties for exports to Sierra Leone where the entire value of exports has been paid by foreign buyer in local currency though the amount could not be repatriated due to exchange regulations in that country. He submitted that in view thereof, the learned Adjudicating Officer ought to have adjudicated upon the exports made to Raxshire alone and even if we go by the quantum determined by the adjudicating authority for those outstandings, the penalty would not have been more than a few lakhs rupees, instead of the bewildering amount of ₹ 3.14 crores. Even in respect of exports to Raxshire, Shri Arora submitted that there was no justification for imposition of any penalty in view of undisputed evidence that the appellants were prevented from instituting legal action against Raxshire, two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he RBI after two years of coming to know that Raxshire has no intention to make the payment and by that time, i.e., 1987, Raxshire had gone into liquidation. He submitted that the judgment of the Karnataka High Court is applicable with all force. We have gone through the judgment of the Karnataka High Court. In that case, the appellant approached the High Court two years after he came to know about the liquidation of the foreign buyer. We accept Shri Arora s submission that the present case is distinguishable inasmuch as in the case of Raxshire, London, the appellant approached the RBI in January 1985, i.e., two years before Raxshire went into liquidation but it was the RBI who held back their decision for two years in spite of the numerous letters and personal visits of the appellants. The RBI sent their reply only in 1987 and it was the RBI who intimated to the appellants that Raxshire had gone into liquidation. These facts cannot be controverted as they are supported by documentary evidence on record. There is, therefore, no reason to reconsider our decision to waive the pre-deposit of penalty. 5. In the premises we proceed to dispose of all these appeals by this common order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the appellants before the adjudicating authority. Volumes I, II and III contain replies to the charge of contravention of section 18(2) as made under the SCNs. Each volume contains, apart from the reply, documentary evidence running into more than hundred pages consisting of correspondence made by the appellants with foreign buyers, the RBI, the appellants banks and the correspondent banks, etc., to show the efforts made by the appellants towards realisation of the outstanding amounts. Volume III also contains written submissions in respect of charges other than that of contravention of section 18(2). Volume IV contains the correspondence relating to seeking extension of time in respect of the outstanding GRIs. This correspondence pertains to the period April 1, 1984-August 1987. Volume V contains additional documents in support of the efforts made by the appellants towards realisation of the outstanding amounts and the stand taken by them in reply to the SCNs. The appellants have explained in detail the position regarding each outstanding GRI duly supported and referenced by documentary evidence. Wherever there has been repetition of the same GRIs in more than one SCN, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the question of the exports to Freetown, Sierra Leone (Toufic Habulla Sons). Volume II of the written submissions filed by the appellants on 22-3-1990 before the learned Adjudicating Officer contains the statement in detail, of the facts and circumstances in which the proceeds of the said exports were paid to the correspondent bank but the same could not be remitted to the appellants. The appellants have also filed a tabular statement referring to SCNs issued to each of the appellant, the number of shipments made, the invoice value of each shipment, the amounts realised and the amounts outstanding. They have also filed copies of the correspondence, running into more than 200 pages, between the appellants and the foreign buyers, RBI, appellant s bankers, BCCI, Governmental agencies of Sierra Leone, and copies of case law on the true interpretation of section 18(2). After stating the efforts made by the appellants in keeping track of the shipments which invoked at least two trans-shipments, through barges, before they could reach the ultimate destination and the efforts made by them towards securing the proceeds of the exports. It has been submitted that under the forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hekhar s statement and the report prepared by him was motivated and factually incorrect, and the queries raised by the RBI based on that report were not called for in view of the position communicated by BCCI, Sierra Leone, the correspondent bank directly to PNB and the Reserve Bank of India. The appellants submitted that there can be no scope for any doubt about the full payments of the bills in local currency as the equivalent amount of foreign currency has also been confirmed by BCCI to Punjab National Bank. It has been submitted that after a long time, PNB have accepted the position as earlier communicated by the appellants. Referring to PNB s letter of 21-2-1990 it has been submitted that the bank has confirmed payments of 465 bills amounting to US $ 40,13,387.30 and . 2,09,383.60 that had already been paid in local currency and were pending externalization which would be made only when the foreign Government permitted. In the course of the arguments before us, Shri Arora, the learned counsel for the appellants, submitted that 8 unpaid bills are in respect of undelivered goods and, that the amount already paid, is more than the total amount shown as outstanding under the vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge the tenor, the overseas (Sierra Leone) buyer could have made some of the payments for a portion of the goods. Dr. Shamsuddin in his written submissions also stressed the same point. He referred to certain instructions of RBI which are not relevant to the issue, and wherever applicable, have been complied with by the appellants. The learned Adjudicating Officer has not referred to any statutory provision under which permission of the RBI was required for changing the terms of payment. He ought to have appreciated that it is open to an exporter to sell the goods, by way of export, on D.A. terms, D.P. terms or under a L.C., as per his business decision. He also ought to have noted that the fact of sale of goods to an alternate buyer and change of terms had been duly intimated to the authorised dealers. The entire correspondence with the RBI shows that RBI was also aware of the fact. The learned Adjudicating Officer should also have noted that had any statutory provision required permission of the RBI for changing the terms of payment, the appellant would have been charged for contravention of that provision. Neither Dr. Shamsuddin nor Shri Gadoo could refer to any provision which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve conclusion, the learned Adjudicating Officer fell into the error of fact as well as of the perception of what is required of an exporter where payments for the exports have not been made by foreign buyer. As to the facts, the evidence of PNB s letter of 21-2-1990 in Vol. V clearly establishes that the payment of the outstanding bills had been made by the foreign buyer in local currency, the equivalent of which in foreign currency has also been mentioned in that letter. Thus, insofar as the foreign buyer is concerned, it is as good as he has made the payment. The remittance of the amount lying with the Central Bank of Sierra Leone depends on the permission of the Government of that country to release the foreign exchange. In the circumstances, there is little that the appellants could do. The learned Adjudicating Officer also concluded, as to facts, that after the receipt of BCCI s letter in 1987 the appellants have not made any efforts to secure the remittance. This is not factually true. It is clear from PNB s letter of 21-2-1990 that the bankers had conveyed to the appellants that they were unable to externalise those payments and release the related GR Forms and give credit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on considerations such as relationship with the buyer in the sense of past business and future prospectus of business, the quantum of outstanding amount in relation to the total turnover, the likely effect on the buyer if a complaint is made to a Governmental agency for action, the pros and cons of any legal action if initiated against the defaulting buyer, etc., etc. Thus, there cannot be any specific step or set of steps that have to be uniformily taken against all defaulting buyers, whatever be the situation. But one thing cannot be disputed that it is not expected of an exporter to take any futile action because such action can never be considered to be reasonable and will be of no consequence. 20. It is also to be noted that although the provisions of sub-section (3) speak of all reasonable steps, in its true import and purport the word all would not necessarily cannote a series of actions. It is not a numerical expression. As an individual may by himself constitute a class, even a single step towards realisation of exports proceeds may amount to taking all reasonable steps. For, if appropriate legal action is initiated against the defaulting buyer, it would not be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, as disclosed by the evidence, is that they have been victim of deception on the part of the foreign buyer in connivance with PNB whose Chairman is foreign buyer s father; that when they came to learn that the foreign buyer was making false excuses about the matter, they contacted local solicitors in London and on their assurance that there is possibility to trace Raxshire s funds in the hands of the director of the company, the appellants sought permission of the RBI for release of foreign exchange of 15,000 for initiating legal action. The appellants provided the particulars of Raxshire s assets and those of its director, as required by RBI apparently to satisfy them that the legal action would not be a waste of money. They also impressed upon RBI about the urgency as there was likelihood of Raxshire s assets being siphoned off by Man Mohan Chopra. It is surprising that in spite of more than a dozen reminders and personal visits, the RBI did not release foreign exchange of 15,000 to the appellants, who have been earning foreign exchange equivalent to crores of rupees annually the year 1975. What is more surprising is that after a lapse of more than two years it was the RBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allegation that they had not taken adequate steps to secure payments for the exports made by them to Raxshire and, therefore, they cannot be held guilty of contravention of section 18(2) on that account. 26. The learned Adjudicating Officer has relied on the letter given by the appellants managing partner to BCCI, the correspondent bank, in May 1984, advising them against any action against Raxshire Ltd. without reference to the appellants. In this connection, the learned Adjudicating Officer has also relied on the letter dated 6-8-1984 of H.C. Bank in which reference to BCCI s letter has been made. No doubt, on face of it, it would appear from this letter as if BCCI wanted to initiate some legal action against Raxshire which was pre-empted by the appellants. However, if one were to apply his mind, it would be clear that that letter was nothing more than an expression of the appellants faith in Raxshire and was of no consequence because there is no evidence that BCCI was contemplating any action against Raxshire for non-payment, nor did it have any locus standi to do so. The appellants have duly explained the circumstances in which that letter was given and have also explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts about the counter cash sales by the foreign buyer as to when it had come to their knowledge. They had also explained about the rate of exchange in which the local currency was converted into foreign exchange in respect of bills paid in Sierra Leone. It has been brought out that the point of rate of exchange raised by RBI, on the basis of intimation given by PNB to RBI, was totally misplaced and uncalled for in view of the fact that correspondent Bank, BCCI had intimated the amounts in foreign currencies of US Dollar and Pound Sterling which were pending externalisation. The PNB in their letter of 21-2-1990 confirmed the position as intimated to RBI by the appellant as far back as in 1987. In RBI s letter of 2-7-1988 which was also stressed by Shri Gadoo, it is stated that the amount deposited in local currency in Sierra Leone comes to US $ 81,691. The learned Adjudicating Officer obviously has taken that position into consideration. However, he did not take into consideration the fact that the appellant had disputed that figure and his stand stood vindicated by PNB s letter of 21-2-1990 where it has been confirmed that the funds deposited in local currency are equivalent to U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at regard as arrived by the learned Adjudicating Officer. 31. In Vol. III of their compilation, the appellants have explained the position of outstanding GRIs in respect of exports made to Monrovia, Liberia. The main importer in that country, as noted by the learned Adjudicating Officer, was Westcoast Enterprises. Two other minor exports were made to K. Niam Bros. and P.G. International. Shri Arora, the learned counsel for the appellant, submitted that the appellant had explained the efforts made and the circumstances in which the amount from these two minor importers could not be realised in its application for allowing write off of the outstanding amounts. As stated in the written submissions contained in Vol. III, the application for write off was made as long back as in 1980 itself but the RBI did not take any action. Shri Arora submitted that in view of the hostile attitude adopted by the appellant s bankers and the attitude of RBI to allow themselves to be influenced by the misinformation and distorted facts given to them by the authorised dealer, there was no occasion for the appellant to pursue the case of write off of the small amount involved in the export to the later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, there is adequate evidence of non-delivery of cargo. The conclusion of the learned Adjudicating Officer is based on false factual assumptions. We find that the appellant had also filed a copy of the plaint in the suit filed against the insurance company before the Madras High Court which contains the claims in respect of non-delivery of the consignments to Monrovia. In view thereof, we are satisfied that the findings of the learned Adjudicating Officer are based not only on wrong facts but contrary to evidence on record. 34. While on the point of non-delivery of goods we consider it necessary to observe that in order to proceed against an exporter under section 18(2), the burden is on the department to prove that the goods exported by the party have been cleared by the foreign buyer because unless the foreign buyer receives the goods, the question of making payment therefor cannot arise. Nor would arise the question of recovery of the value of goods from him. The proper course to be adopted by the investigation, in such cases, should be to scrutinise the records of the exporter s bankers through whom the documents are negotiated as a scrutiny of those records alone can giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase treat this as most urgent . It would, thus, be seen that the appellants were not at fault for late delivery of documents; it was the fault of the bank for which they had to suffer and they further suffered because in the meanwhile, the goods were auctioned by the local port authorities. The learned Adjudicating Officer considered the reply of 14-2-1985 from the bank but omitted to consider the evidence of the appellants letter of 27-12-1983 under which the request was made. In our opinion, in view of the evidence referred to by us, the conclusion of the learned Adjudicating Officer, viz. this further shows that the exporter has not been diligent in his efforts cannot be said to be based on any evidence and is, therefore, totally unsustainable. 36. While on reimport of goods that were refused by the foreign buyer we also observe that there is another set of numerous correspondence with PNB also who had been putting various pre-conditions for reimport. This led to the appellants ultimately making a complaint to RBI vide their letter dated 15-4-1985. The prompt action taken by RBI on this letter, as also the tenor of their letter of 30-4-1985 shows that the pre-conditions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are surprised that in spite of the records of civil proceedings of insurance claim and numerous correspondence about the reshipment of goods, the learned Adjudicating Officer has drawn the conclusion that the assertion made about the non-delivery and insurance claim, etc. are bereft of truth . We are of the opinion, on the basis of the evidence of certificates of non-delivery and corroborative evidence of numerous correspondence with the Banks and the suit against insurance companies that the consignments in question were not delivered to the foreign buyer. Shri Gadoo was fair enough to concede that where goods have not been received by the foreign buyer, the question of contravention of section 18(2) does not arise. 38. In Vol. III of the written submissions, we also find documentary evidence of the correspondence indicating the action taken by the appellants for initiating legal action against certain other foreign buyer whose cheques had bounced. He also sought the help of one of the local friends, Shri Deepchandani, who had been able to obtain the cooperation of the local Consulate General of India towards clearing some of the outstanding payments. In any case, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to extend the time. In the circumstance, the evidence of compilation in Vol. V is of no consequence now. 42. In view of the above, the impugned order insofar as it holds the appellant s guilty of contravention of section 18(2) on the allegations contained in the related SCNs is liable to be set aside as also the penalties imposed therefor. Since the appellant-firms and the appellant-company are not guilty of contravention of section 18(2), the question of invoking the provisions of section 68(1) does not arise and the penalties imposed on the managing partner and managing director for contravention of section 18(2) are also liable to be set aside. 43. We would now proceed to consider the charges contained in SCNs II, V and VIII, all of 9-9-1983. The learned Adjudicating Officer has considered the charges under SCNs II and V together, However, the number of SCN V has been wrongly mentioned as IV . In the findings also the charges as established have been wrongly mentioned as those of contravention of section 9(1)(a) and 9(1)(d) though the provisions mentioned under the said SCNs are section 9(1)(c) and 9(1)(a), respectively. The penalties of ₹ 10,000 on the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries, he would be justified in claiming reimbursement from them. 45. In view of above, in our opinion, the finding of contravention of section 9(1)(a) on the part of the appellant, SRC Industries, cannot be sustained. In the circumstances, the penalty on the managing partner of the SRC Industries is also not tenable. 46. As regards the charge under SCN II, the allegation is that the appellant SRC Industries acknowledged a debt of 2,353.88 so that a right to receive payment of the said amount was created in favour of Toufic Habulla, a person resident outside India. The amount of 2,353.88 has been worked out by deducting the amount of 2,102.33 from the amount of 4,456.21 (which is the subject-matter of the charge under SCN V). Significantly, the evidence to support the charge in the SCN is the statement dated 18-7-1982 of Shashi Prakash, the partner of SRC Industries. It would be noted at the outset that Shashi s statement cannot be an acknowledge-ment of the nature so as to create a right to receive payment of 2,353.88 in favour of Toufic Habulla. The acknowledgement contemplated under section 9(1)(c) has to be such that an action for recovery of the amount can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that this agreement was a sham and was not intended to be acted upon loses its validity in view of the fact that until the initiation of the adjudication proceedings in the year 1990 there is no evidence that either party had acted in pursuance of that agreement of 1982. If it is argued that the said agreement was initially intended to be acted upon but the parties gave up their intention subsequently, the matter would be of academic interest. 48. Shri Arora, the learned counsel for the appellant, has also assailed the charge by advancing another argument that the appellants cannot be held guilty of the charge on the basis of the said agreement in view of the provisions of section 47(2). In our opinion, this argument is not without force. Assuming that the appellant had agreed to pay US $ 30,000 to Farage, such agreement, by virtue of the provisions of section 47(2), would be read subject to an implied term, viz., that the payment would be made only with the permission of the Reserve Bank. The effect of the provisions of section 47(2) is as if a pre-condition of RBI s permission has been physically incorporated in the agreement. Consequently, since the obligation under the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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