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TMI Blog2020 (1) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... . Against such purchases, the petitioner had received advance payment from time to time. 4.1 It is submitted that in terms of the purchase contract and the advance money received from the overseas buyer, the petitioner company was ready with the shipment to be exported. However, on various occasions, the overseas buyer requested the petitioner company to hold the shipment against the aforesaid purchase contract till their further instructions, amongst their letter dated 30-12-2008 wherein similar request was made by the overseas buyer to the petitioner company. In response to the aforesaid letter, petitioner company vide letter dated 10-1-2009 informed the overseas buyer that the ordered goods against the purchase contract are lying ready with the petitioner company for export. It is submitted that meanwhile, during the period from 14-9-2009 to 29-10-2009, for executing the aforesaid purchase contract, out of the said export advance money received from the overseas buyer, the applicant purchased 3,94,208 pcs. of men's 100% cotton knitted T-shirts costing Rs. 1,48,77,876/- in addition to the stock lying with the applicant. Thereafter, vide letter dated 24-9-2009, the overseas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cargo in the local market. At the same time, the petitioner company also requested the overseas buyer that now they would require minimum three months period to make the said amount. 4.5 It is submitted that on 2-5-2011, the petitioner company intimated the overseas buyer that they would not be in a position to export the goods at old contracted price as the price of cotton has been increased to an extent of 200%. In spite of understanding the situation of the petitioner company, the overseas buyer vide letter dated 10-5-2011 threatened the petitioner company of taking legal action and that they would inform the said dispute to the Indian Embassy and also ensure that the petitioner company's name is put in blacklist in Embassy of UAE. 4.6 It is submitted that the petitioner company, with no other alternative but to amicably settle the issue, addressed letter dated 17-5-2011 offering other commodities for shipment against the aforesaid purchase contract No. TS/FFR/01-09/10, dated 2-11-2009 as well as also agreeing to bear the loss which would occur in their business. In this regard, contract dated 9-7-2011 was entered between the petitioner company and the overseas buyer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, application ought to have been decided after affording hearing to the petitioner, more particularly in view of the direction of this Court in the previous petition. It is submitted that no such opportunity of hearing has been given. However, by relying upon notification dated 20-2-2017, by which proviso was added to sub-rule (2) of Rule 8 of the Rules, the application of the petitioner was rejected. 4.11 It is submitted that the application of the petitioner was prior to coming into effect proviso to sub-rule (2) of Rule 8 of the Rules. The said proviso came into effect on 20-2-2017 whereas application of the petitioner is of 30-12-2016. The amended proviso cannot be given retrospective effect unless specifically provided for. 4.12 It is also submitted that the reason for returning the application mentioned in the impugned communication is amended proviso and the information of the Directorate of Enforcement, Mumbai that the proceedings have been initiated under the Act against the petitioner and its three directors. However, under specific instructions, Learned Advocate for the petitioner states that till date, insofar as the present transactions are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nager, i.e. respondent No. 3. Rule 4 provides for power of Reserve Bank to compound contravention. 8. It appears that after application to respondent No. 3 on 30-12-2016, there was no decision by the respondent authorities on such application and hence, petition being SCA No. 17973 of 2013 came to be filed, wherein by order dated 19-12-2016, following directions were issued :- "2. Without expressing any opinion on merits, it is provided that in case if the petitioner company and its Director/s file an independent application under the provisions of the Foreign Exchange Management Act, 1999 and/or the Foreign Exchange (Compounding Proceedings) Rules, 2000, before respondent No. 2-Authority, the same shall be considered on their own merits, within a period of 180 days statutorily provided under the Rules. The order that may be passed and communicated to the petitioner company or its Director/s should be a reasoned order." 8.1 The directions issued by this Court appear to be to consider the independent application filed under the provisions of the Foreign Exchange Management Act, 1999 and/or the Foreign Exchange (Compounding Proceedings) Rules, 2000 and to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 10. The amendment providing for proviso to sub-rule (2) of Rule 8 of the Rules has come into effect by notification dated 20-2-2017 in exercise of powers conferred under Section 46 read with sub-section (3) of Section 15 of the Foreign Exchange Management Act, 1999. The said proviso reads as under :- "Provided that with respect to any proceeding initiated under Rule 4, if the Enforcement Directorate is of the view that the said proceeding relates to a serious contravention suspected of Money-laundering, terror financing or affecting sovereignty and integrity of the nation, the compounding authority shall not proceed with the matter and shall remit the case to the appropriate Adjudicating Authority for adjudicating contravention under Section 13" 11. The Court is inclined to consider the first and foremost argument of the Learned Advocate for the petitioner that the decision which is taken under the impugned communication is required to be passed after providing an opportunity of hearing to the petitioner whereas this contention is opposed by Learned Advocate for the respondent-RBI on the ground that in view of the proviso to sub-rule (2), moment the Enforcement Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e compounding authority and the compounding authority has to exercise the power of compounding subject to the directions, control and supervision of the Governor of the RBI. The power to compound is not unbridled, unchecked, much less unregulated. It has to be exercised in accordance with the Act and the Rules and subject to the directions, control and the supervision of the Governor of RBI. The law eschews every possibility of unguided exercise of this power. As far as the power of the Enforcement Directorate to compound contravention is concerned, that is to be found in Rule 5. In that case as well, the Director of Enforcement has to direct, control and supervise the exercise of power to compound contravention. Rule 6 is important and it says that where any contravention is compounded before the adjudication of any contravention under Section 16, no inquiry shall be held for adjudication of such contravention in relation to such contravention against the person in relation to whom the contravention is so compounded. However, Rule 7 says that where the compounding of any contravention is made after making of a complaint under sub-section (3) of Section 16, such compounding shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79. All that the proviso does is to enable the Enforcement Directorate to communicate its view with regard to a serious contravention suspected of money-laundering, terror financing or affecting sovereignty and integrity of the nation. Once that view is recorded and communicated, it is the bounden duty of the compounding authority and namely the RBI in this case not to proceed with the matter, but to remit the matter to the adjudicating authority for adjudication of the contravention. Therefore, no compounding is then permissible. In any event, if the compounding results in making payment, but that payment is not made, then, no compounding can come into effect. No contravention can be compounded if an appeal stands filed under Sections 17 and 19 of the Act." 13. The Court has perused the communications of the Enforcement Directorate which are addressed to the Special Director, Directorate of Enforcement, Western Region, Mumbai, which refer to the proceedings of justification to the export obligation by the petitioner regarding cut and polished diamond under three separate purchase contracts. However, as the Court is not entering into the merits of the impugned decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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