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TMI Blog2020 (11) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... n record that he was also a Director of the said group of companies. The Adjudicating Authority has imposed a total penalty of ₹ 42,15,000/- on Shri Sebastian Chokkattu. There is nothing on record that he has taken any sufficient steps/action to realise the export proceeds and that on the grounds stated in the Show Cause Notices and the reasons cited in the impugned order it is clear that exports were made and diverted. The nonrealisation of export proceeds cannot be said to be beyond the control. Mere pendency of the application for set off/write off does not absolve the responsibility of the appellants. On the given facts and circumstances of the case, I do not find any infirmity or illegality in the impugned order passed by the Adjudicating Authority. Considering the amount involved in the contraventions, it is held that the amount of penalties imposed on Shri Sebastian Chokkattu, on the basis of individual Show Cause Notices wherein contraventions has been described in details, are proper and proportionate. Hence no interference in the findings arrived at by the Adjudicating Authority, in respect of Shri Sebastian Chokkattu, is called for. Shri B. Balakrishnan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18(3) read with Section 68 of FERA, 1973, the Central Government Notifications dated 01.01.1974. In view of the above, the findings of the Adjudicating Authority holding Shri S. Sunil Kumar liable for the aforesaid contraventions and imposition of penalties are erroneous in law and not legal, hence, quashed and set aside. - FPA-FE-604/CHN/2003, FPA-FE-603/CHN/200, FPA-FE-657/CHN/2003 And FPA-FE-555/CHN/2003 - - - Dated:- 10-11-2020 - Shri G. C. Mishra : Acting Chairman For the Appellant No(s). 1 to 4 : Mr. Wills Mathews, Advocate For the Respondent (ED) : Mr. Rajesh Ridla, Assistant Legal Adviser, Ms. Ankita, Legal Consultant JUDGMENT FPA-FE-604/CHN/2003, FPA-FE-603/CHN/2003, FPA-FE-657/CHN/2003 FPA-FE-555/CHN/2003 The afore named appellants filed separate appeals against the common order passed by the Special Director of Enforcement Directorate on 30.09.2003 in File No.T-4/7-M/2000 T-4/22-M/2002 vide Order No.SDE(SSB/IV/36-40/2003). All these appeals are interconnected and revolve around common facts, therefore, this common order has been passed while dealing each appeal separately. It is seen from the record that the Special Director issued fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( Trend Setters Group , for short) were charged for the aforesaid violations for the provisions of FERA, 1973 in terms of Section 68 of the said Act. The facts as it appeared from the records are that on the basis of information received vide letter dated 30.07.1996 from the RBI, Kochi that, M/s. Trend Setters Instyle India Ltd. M/s. Mode Creazone India Pvt. Ltd. carrying on business from the Cochin Export Processing Zone (CEPZ), had failed to realise substantial export proceeds and that the goods exported to buyers in U.S.A. Canada were rejected due to poor quality and diverted to M/s. Trend Setters, Ajman and M/s. FSC Co. Ltd., Hong Kong without the RBI s approval and that the companies did not vigorously follow up the realizations and that the exporter s applications for set off/write off of unrealised export bills against unpaid import bills were pending. The RBI subsequently informed that, during 1995-97, the two companies and also M/s. Trend Designs Ltd. from the Trend Setters Group made certain remittances to Hong Kong, Korea and UAE for import of fabrics/accessories for which Bills of Entry evidencing actual import of the materials were not submitted to the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point for consideration is not whether the noticees received less or full quantity of goods but as to what steps the noticee company took for obtaining refund of the excess remittance. As on this component, the law is clear and envisages that when a remittance is made, the imported goods should be of the specified quality, quantity and invoice value. It may be observed that if the noticees claim is that lesser quantity of goods was received, the responsibility for recovery of over payment so made will have to be squarely borne by the noticee. The admitted position being that the notice has failed to retrieve back the excess payment, the contravention is complete with the noticee becoming liable for penal action. 34. All considered, I find that the charges against the noticee companies as spelt out in all the five SCNs under consideration stand established for the reasons detailed hereinbefore. Further, the charges against the individual noticees charged for the violation in terms of Section 68 of the FERA, 1973 are also held as proved. THE PENALTIES IMPOSED BY THE ADJUDICATING AUTHORITY: In view of above findings, various penalties were imposed as per the different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Bank, Shanmugam Road, Kochi and State Bank of Tranvancore, Overseas Branch, Kochi and that M/s. Trend Setters Instyle India Ltd. and M/s. Mode Creazone India Pvt. Ltd. could not realise substantial portion of their export proceeds to the tune of US $ 7,45,333.95 and US $ 3,97,366.51 and that the reasons for such huge outstanding were attributed to the buyers raising quality claims and refusing to take delivery of consignments due to delay in shipments and that during 1997 and 1999- 2000, the companies faced large-scale labour unrest, consequent lock-outs and finally winding up proceedings and that during the labour strike/lock outs etc, the companies could not execute orders in time and further quality suffered as well and that the noticee companies were importing fabrics/accessories from Korea, Hong Kong, U.A.E. etc, and a number of import bills remained unpaid due to acute financial crises faced by the Group and because of lock-outs and closure of factories production and that the total amount of foreign exchange due for remittance exceeded the proceeds pending realisation and that the proposals were submitted by the companies to the RBI in 1999 to allow set off of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Chokkattu, Chairman of the Group was already having 49% stake in the holdings and the company failed to submit relevant B/Es to the authorised dealer/RBI. Vide letter dated 09.11.2001, the RBI further informed that another company of this Group, M/s. Intimate Apparels (P) Ltd., had also failed to realize substantial export proceeds consequent upon which, vide letter dated 17.10.2001, the RBI caution-listed the company. An amount of US $ 4,69,930.58 attributable to exports by this company was stated to be pending. In its letter, the RBI mentioned that the Trend Setters Group of Companies have closed business and, on orders of the Deputy Development Commissioner, CEPZ, the premises were vacated. It is also revealed from the record that M/s. Trend Setters Instyle India Ltd., M/s. Mode Creazone India Ltd. M/s. Intimate Apparels (P) Ltd. contravened the provisions of Section 18(2) 18(3) of the FERA, 1973 read with Notifications related thereto and further that M/s. Trend Setters Instyle Ltd. M/s. Trend Designs Ltd., contravened the provisions of Sections 8(3) 8(4) of FERA, 1973 read with Para 7A-20 of the Exchange Control Manual Vol.I, 1993 Edition of the RBI. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, air freight expenses etc which all adversely affected the Companies financial position. A number of import bills remained unpaid due to acute financial crisis faced by the Group due to the above said reasons. From this itself it can be seen that the problems were caused absolutely due to reasons beyond the control of the Management. The Hon ble Supreme Court of India in D. Govind Ram Vs Shamji.K Company ( AIR 1961-SC 1285 at Para 17) has held that the expression force majeure is not a meager French version of the Latin expression Vis Major . It is undoubtedly a term of wider import. Difficulties have arisen in the past as to what could legitimately be included in Force Majeure . Judges have agreed that Strike, Break down of Machineries which normally not included in Vis Major‟ are included in Force Majeure‟ . An analysis of this ruling on the subject into which it is not necessary in this case to go shows that were reference is made to Force majeure‟ the intention is to save the performing party from the consequences of anything over which he has no control. 5) The workers of the companies started agitation in October, 2000 demanding w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the import bills payable to his companies abroad will come to US $ 2385119.45 (IRS 11.98 Crores) whereas the export bills payable by his companies to the Trend Setters Group in Cochin comes to US $ 731135.85 (IRS 3.65 Crores). It is submitted that the Group companies in India took the help of associate companies abroad to market the rejected / cancelled goods due to delay, quality complaints etc with regard to the products and disposal of such rejected goods which bear registered label of the buyers is not a normal commercial transaction and at this stage the Associated companies abroad tried to dispose the said rejects/ seconds which was not marketed successfully due to inferior quality of stock resulting in non-payments. But the associated companies abroad helped the Group companies in Cochin by sending raw materials and accessories. 11) Such unpaid imports exceed the unpaid exports as detailed above for which a request for set off of unpaid exports against unpaid imports is pending before the Reserve Bank of India. It is submitted that as per revised provisions in Exchange Control Manual, RBI can permit write off up to 10% of total export earnings for various purpose li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had put him in personal hardship there also. 13) The appellant submits that he is a Non Resident Indian and the day to day management and running of the affairs of the companies were looked after by a full time Managing Director and other functional Professional Managers in India till 1997. The appellant also submits that he was having other business interests abroad and was not able to concentrate much on the affairs of the companies in India where a full time Managing Director by name Shri V.P. Gopalakrishnan Nair is employed with full operational powers subject to the supervision of Board of Directors in which there were nominee Directors from various Financial Institutions. 14) It was the consistent case of the appellant all along that the export in question in respect of which non-realisation of export proceeds alleged took place during the period 1992 to 1997 under the direct control of full time Managing Director appointed exclusively to look after the day to day affairs of the Group companies in India, whereas the appellant is a Non Resident Indian based in Hong Kong and was engaged in other business including meeting buyers for procurement of orders for his companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by experts including RBI Officials to bring in foreign exchange towards export receivables and to take back the same against import payables and by repeating the same mode of transactions a few times the entire issues will be settled. However considering the cost involved and also the delay involved the appellant decided to absorb the losses himself and opted for a set off even though he suffer huge financial loss personally and submitted relevant documents to Reserve Bank of India so that unnecessary litigations can be avoided and the appellant can have peace of mind. The appellant submits that in the proposal submitted to RBI for set off and write off, there is no foreign exchange loss to the country and Reserve Bank of India, in the year 1996 has granted such a set off for one of the companies. 18) The Companies of which the appellant was the Director was wound up by the Hon ble High Court of Kerala as per its order dated 20.03.2001 in C.P.Nos.l, 4 and 5 of 1998. Under Section 446 of the Companies Act, 1956 a proceedings against a company under liquidation can be initiated or pursued only with the leave of the Company Court. This was specifically pointed out at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Auditor as the case may be and forwarded by the Authorised Dealer to Bank which clearly establishes the authenticity of claim. There is no foreign exchange loss to the country, as the import payable is much higher than the export receivables. Hence application for setoff against import payables can very well be allowed based on the precedent set. RBI had referred the matter to Enforcement Directorate without disposing the setoff request which were actively under their consideration as evidenced by several communications to and from RBI. It is absolutely unjust. The non-realisation started due to various reasons including the outbreak of plague epidemic in the year 1994 and subsequently several labour unrests etc which is stated in detail above. Companies could have easily paid the import payables which were long pending but didn't do so as those funds were used for the expansion/sustenance of the companies in India. 22) That the impugned order is factually perverse and legally erroneous and therefore same is liable to be set aside in the facts and circumstances of the present case. It is in fact the appellant who had lost foreign exchange to the tune of IRS 17.8 Crores to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant. 5) As far as the appellant is concerned there is no lethargy or inaction on his part. While in office he was taken all prudent steps to realize the amount due. He left service in the year 1998 and thereafter he had no knowledge about the said affairs of the company. All the issues mentioned above resulting in serious violation of Fundamental Rights of the petitioner. WRITTEN SUBMISSIONS ON BEHALF OF SHRI BIJU THOMAS (APPEAL NO.657/2203) filed on 18.07.2018 1) The Appellant above named, being aggrieved by the findings and order passed by the Special Director of Enforcement, Directorate of Enforcement, New Delhi thereby imposing personal penalties upon Appellant ₹ 5,00,000/- with regard to Memorandum SCN-I, ₹ 3,00,000/- with regard to Memorandum SCN-II, ₹ 2,00,000/- with regard to Memorandum SCN-III and ₹ 5,000/- with regard to Memorandum SCN-IV under Section 68 of FERA, 1973. Being aggrieved thereby, the Appellant had filed the Memorandum of Appeal No.555/2003 which is now pending before the Hon ble Tribunal. 2) The appellant was never involved in the day-to-day matters of these companies even though he was Director as he was statio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligence after taking over charge on 01.01.1998 to realise the export proceeds in respect of export made in previous periods. Nowhere in the impugned order this aspect of the case has been considered by the authority below and his order proceeds on the premise as if the appellant was in charge of the affairs of the companies all along 1992 to 1997. There is no personal allegation against the appellant that he had done anything illegal or benefitted out of it. 3) It is settled law that when contentions are advanced before a quasijudicial authority he is bound to consider the same and pass orders on merit. Nowhere in the order it is stated that the appellant was instrumental in causing any loss to the Government. Therefore the order passed against the appellant by the authority below is in gross violation of the principles of natural justice and therefore without jurisdiction. 4) The respondent ought to have found that the appellant was only a Paid Employee of the Companies of which he was the Chief Executive Officer and there is no evidence on record to prove that he was in any way benefitted by any contravention of the provisions of the Foreign Exchange Regulations Act. No me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .01.1998. The day-to-day business affairs of the Companies during the period 1991 to 1997 were looked after by Shri V.P. Gopalakrishnan Nair, Managing Director, from the year 1991 to 1997 during which the contraventions if any are alleged. There is no case that there is any non-realisation during the period in which the appellant was Chief Executive Officer, i.e. from 01.01.1998 to 24.10.2000. In fact it is the appellant who had taken all possible steps to recover the amounts by taking various actions like instituting legal proceedings/ Suits, seeking the assistance of Commercial Attache in the Indian Embassy, USA, approached the RBI for relief as provided in the Exchange Control Manual, traced out the misplaced documents like Bill of Entry, Shipping Bills etc and submitted to RBI ever since he assumed charge as CEO on 01.01.1998. All the issues mentioned above resulting in serious violation of Fundamental Rights of the petitioner. This fact was not at all appreciated by the Respondent. The appellants filed additional written submissions on dated 06.02.2020: a) All investments by the petitioners are brought on repatriable basis. b) The petitioners have taken up the matters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off submitted with consent of parties. Audited statements and invoices and customs entry forms etc. Therefore, no foreign exchange loss is made to the country. It is also worth mention that all investments brought to the country in foreign exchange by Mr. Sebastian Chokkattu as NRI on repartriable basis and made a total loss. But country earned foreign exchange and over 5000 people got trained and reach high levels in life. Mr. Sebastian Chokkattu was having close to 5000 people working in Kerala now he is alone and with financial constraints, with serious medical problems and not in a position to hire people, that is why it took long time to get the documents in order. In addition to aforesaid submissions the learned counsel for the appellants has filed additional clarifications on 06.11.2020 wherein he has referred to page no.133, 261, 263, 191 of the correspondences filed along with the clarification application on write off/set off correspondence. He has also filed two judgments passed by Hon ble Delhi High Court in the matter of Kavita Dogra Versus Directorate of Enforcement in CRL.A.44 of 2008 and judgment passed by Hon ble High Court of Bombay at Mumbai in the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al for Foreign Exchange to consider and pass order of Appeals in all these three cases as early as possible, after affording opportunity for hearing to the petitioners, at any rate within a period of 2 months from the date of receipt of copy of the judgement. v. WP(C) No.6994/2010 Shri Balakrishnan Vs. Special Director and others. Vide judgement dated 05.03.2010, the Hon ble Court applied ratio in judgement in WP(C) No.16446/2009; further directed to keep in abeyance recovery proceedings till disposal of the appeal by the Hon ble Tribunal. vi. WP(C) No.29496/2009 and vii. WP(C) No.10807/2018 Shri Sunil Kumar Vs. Special Director and others. Vide judgment dated 20.09.2017 the Hon ble High Court of Kerala ordered that the District Collector shall consider the petitioner s claim after notice to the petitioner and the first Respondent (the Special Director, Enforcement Directorate, New Delhi) within a period of three months; till such a decision is taken in this matter, the interim order passed in this matter will continue. As per the orders of the Hon ble High Court of Kerala, hearing was posted before the Deputy Collector (Revenue Recovery), Kakkanad, Ernakulam, on 07.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .51 and US $ 4,69,930.58 stated to be due to quality claims raised by the buyers and their refusals to take delivery of consignments due to delay in shipments. It is also pleaded by the appellants in their appeals that during the period 1997 and 1999-2000, the appellants companies faced large scale labour unrest, consequent lock outs due to which the appellants companies failed to execute export orders in time and further output and quality of the products also suffered setback and that the importing fabrics/accessories from Korea, Hong Kong, U.A.E., etc, and number of import bills remained unpaid due to acute financial crises faced by the group. In addition to the above grounds for non-realisation of export proceeds and non-payment of import bills. It is also contended by the appellants that the Trend Setters Group of Companies faced acute financial problems due to orders cancellations and subsequent huge claims preferred by the buyers due to non-performance of export orders consequent to the outbreak of plague epidemic and resultant embargo imposed by USA and other European countries against Indian goods and foreign ships avoiding Indian Ports and these being situations beyond th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also filed several other correspondences between the companies with RBI and viceversa, the companies with their banks and vice-versa and between the banks and the RBI. These documents are examined and I do not find anything therein that is required to be answered to the questions involved herein. These correspondences except one or two are of the period of 2003-04. The appellants have also filed the Certificate of the Chartered Accountant. I have examined the same which is also not relevant for the purpose of the present appeals regarding the diversion of exported goods, non-realisation of export proceeds, non-clearance of imported bills and write off/ set off, etc. These documents only shows that the appellants had made certain correspondences with RBI for write off/ set off of export proceeds/ import bills respectively. On the basis of facts alleged above, five Show Cause Notices were issued to the aforesaid appellants including Shri V.P. Gopalakrishnan Nair, since deceased on the facts and grounds stated in each of the SCNs, therefore, the same are not repeated here. The contraventions alleged against the appellants are under Sections 18(2) read with Central Govt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner, or (ii) is delayed beyond the period prescribed under clause (a) of sub-section (1), or (b) that the proceeds of sale of the goods exported do not represent the full export value of the goods subject to such deductions, if any, as may be allowed by the Reserve Bank; and (B) in a case falling under sub-clause (ii) of clause (a) of sub-section (1), also that the sale of the goods is delayed to an extent which is unreasonable having regard to the ordinary course of trade: Provided that no proceedings in respect of any contravention of the provisions of this sub-section shall be instituted unless the prescribed period has expired and payment for the goods representing the full export value has not been made in the prescribed manner within the prescribed period. Provided that no proceedings in respect of any contravention of the provisions of this sub-section shall be instituted unless the prescribed period has expired and payment for the goods representing the full export value has not been made in the prescribed manner within the prescribed period. (3) Where in relation to any goods to which a notification under clause (a) of sub-section (1) applies the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmit Exchange Control copies of Bills of Entry/Postal/Courier Wrapper to the authorised dealer through whom relative remittance was made as evidence that the relative goods for which the payment was made have actually been imported into India. Authorised dealers should ensure that these are submitted in all cases including cases of advance remittances permitted vide paragraph 7A.10, by their importer customers and are verified. (ii) Authorised dealers should in all cases acknowledge receipt of Exchange Control copy of bills of entry/postal/courier wrappers from importers by issuing acknowledgment slips containing the following particulars:- (a) Importer s full name and address with code number. (b) Import licence number and date (wherever applicable). (c) Bank s reference of letter of credit number etc. (d) Number and date of Exchange Control copy of bill of entry/postal wrapper and the amount of import. (e) Particulars of goods imported. (iii)Internal inspectors or auditors (including external auditors appointed by authorised dealers) should carry out 100% verification of all the Exchange Control copies of bills of entry/postal/courier wrappers and a certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hong Kong company under Letter of Credit and the material after clearance was found to contain only 71 rolls, i.e. short supply of 41 rolls for value of US $ 5,659/- and that short shipment was recorded in the Madras Customs records as well as the records of CEPZ, Customs, Kochi and that when the buyer was requested to reimburse the amount (the full amount was already received by M/s. Wide Way Textiles Ltd. as the import was on L/C basis), it claimed that full quantity of shipment was effected by them and that, if any shortage is found, the claim should be lodged with the shipping company; and that the company did not take any further steps in this direction. From the aforesaid facts it is established that the Trend Setters Group of Companies did not realised the substantial portion of export proceeds and it is also established that except filing a Suit before a Sub-Court in Ernakulam, Kerala and writing to the RBI for write off/ set off, no other steps have been taken. In other words, no sufficient and visible efforts have been by/ on behalf of the Trend Setters Group of Companies to realise the export proceeds. Now the question is who was/were the person/persons responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. Mere pendency of the application for set off/write off does not absolve the responsibility of the appellants. On the given facts and circumstances of the case, I do not find any infirmity or illegality in the impugned order passed by the Adjudicating Authority. Considering the amount involved in the contraventions, it is held that the amount of penalties imposed on Shri Sebastian Chokkattu, on the basis of individual Show Cause Notices wherein contraventions has been described in details, are proper and proportionate. Hence no interference in the findings arrived at by the Adjudicating Authority, in respect of Shri Sebastian Chokkattu, is called for. SHRI B. BALAKRISHNAN (APPEAL NO.603/CHN/2003) The appellant Shri B. Balakrishnan was appointed as the Director of M/s. Intimate Apparels Pvt. Ltd. on 11.07.1995. It is seen from Copy of Form No.32 presented before the Registrar of Company on 14.08.1995 that Shri Sebastian Chokkattu presented the said form incorporating therein that Shri V.P. Gopalakrishnan Nair has resigned from the Directorship of the company from 11.07.1995 and Shri B. Balakrishnan appointed on the same date. From the above it appears that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in this regard. So, the contention raised in the appeals regarding the steps taken to realise the export proceeds cannot be believed. However, there is nothing on record placed by the respondent nor there is anything in the impugned order and the SCNs that the appellant Shri Biju Thomas was looking after the day-to-day affairs of the Trend Setters Group of Companies. In the light of the same, the provision of Section 68(2) of FERA, 1973 is not attracted. My conclusion is supported by the Judgment of Hon ble High Court Delhi in the matter of CRL.A.44 of 2008 passed in the matter of Kavita Dogra Versus Director of Enforcement, Enforcement Directorate and Judgment passed by Hon ble High Court of Bombay in FEMA Appeal No.1 of 2010 in the matter of M.M. Shah Versus Deputy Director, Enforcement Directorate Ors. , relied on filed by the appellants, consequently, Shri Biju Thomas cannot be held liable for contraventions of Sections 8(3) 8 (4) of FERA, 1973 read with Paragraph 7A-20 of RBI Exchange Control Manual Vol- I,1993 Edition, Sections 18(2) 18(3) read with Section 68 of FERA, 1973, the Central Government Notifications dated 01.01.1974. In view of the above, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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