APPELLATE TRIBUNAL FOR FOREIGN EXCHANGE (FROM NEW DELHI)

Appeal

284 of 2009, 285 of 2009, 286 of 2009

G RAMA RAJU - Complainant(s)

Versus

SPECIAL DIR OF ENFORCEMENT DIRECTORATE - Opp.Party(s)

BEFORE: Vinay Kumar Mathur, H K Mudgil

Pooja Saigal, Natasha Sarkar

09 Oct 2015

ORDER

Vinay Kumar Mathur, J. Chairperson

[1] We have heard Ms. Pooja Saigal, advocate for the appellants and Ms. Natasha Sarkar, Legal Consultant for the respondent and have also carefully perused the records. The instant appeals by the appellants are directed against the Adjudication Order dated 18-8-2009 passed by Shri P.K. Das, Special Director, Enforcement Directorate. Brief facts relevant for the disposal of the appeals are that on the basis of information received from R.B.I., Hyderabad, a directive under Section 37 of FEMA, 1999 read with Section 131(1 A) of the Income-tax Act, 1961 was issued calling for details of export proceeds pending against the appellants. The company is reported to have admitted export outstanding in respect of 8 GR forms, out of which 5 GR forms were negotiated through Indus Ind. Bank Ltd., Begumpet, Hyderabad, while 1 GR form related to State Bank of India, IFB and 2 GRI forms related to State Bank of Mauritius Ltd., Hyderabad. The total amount of export outstanding was US $ 8,67,275.00. The company also disclosed that the appellant G. Rama Raju was the Managing Director and G. Subha Raju was the Executive Director. Letters were issued to all three banks requesting them to furnish the details of export outstanding pending against M/s. Siris Ltd., Hyderabad. In response Indus Ind. Bank reported that there were 6 outstanding export bills against the appellant M/s. Siris Ltd. However, documents relating to only 5 export bills could be made available by the bank and as the sixth bill related to the year 1999 for US $ 18,000, the same was not available. The total amount of export outstanding was reported by the bank was US $ 6,70,766. The State Bank of Mauritius Ltd. reported that out of 3 export bills pending the proceeds of two bills were received by the State Bank of India and Indus Ind. Bank Ltd. and both banks had furnished the FIRCs to them. Based on the said FIRCs they had released two GRI forms to RBI, while original documents in respect of export under GRI No. AT-0128198 for US $ 61,000 were returned by the importer's bankers, but the amount was received through Indus Ind. Bank and the said bank had issued FIRCs which was held by State Bank of Mauritius. Regarding the third export bill amounting to US $ 66,384.20 the bank stated that the proceeds of the bill had not been received. The total outstanding amount was stated to be US $ 2,11,234.20. The SBI had reported export outstanding of US $ 79,125 against the company.

[2] After conclusion of investigation a complaint was filed before the Special Director, on the basis of which, show cause notice was sent to the appellant M/s. Siris Ltd. for the alleged contravention of Sections 7 and 8 of FEMA, 1999 read with Regulations 3, 8, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 involving export value of US $ 8,67,275.20. Show cause notices to the appellant G. Rama Raju and G. Subha Raju were also issued under the said provisions read with Section 42(1) of FEMA, 1999.

[3] Opportunity for personal hearing was also afforded. During the course of hearing it was informed that in one GRI the proceeds had been realised and the authorized dealer M/s. Indus Ind. Bank and M/s. State Bank of India had been approached for write off on the ground that due to quality dispute in the exported drugs and drug formulation, they had failed to realize the export proceeds in 7 consignments. The Adjudicating Officer was informed that the amount of GR form No. AT 0127134 of US $ 66,384.20 and GR form No. AT 128198 of US $ 61,000 were directed to be written off subject to obtaining no objection for write off from Enforcement Directorate and in respect of GRI form No. AT 109825 amounting to US $ 220633, GRI form No. AT 416139 for US $ 210633, GRI form No. 2561 AWB 09873259760 for US $ 1,13,750, GRI form No. 1001294 AWB 02038654055 for US $ 8350 and GRI form No. AT 0117177 of US $ 9125 write off by the respective authorized dealers in the light of the approval by the RBI had been allowed. The Adjudicating Officer was of the view that regarding the two unrealised GRI forms the authorized dealer had not contacted the Enforcement Directorate. The Adjudicating Officer rejected the claim of the noticee company in respect of the said two GRI forms to the extent of US $ 1,27,384.20 as in his view the company had failed to take all reasonable steps to realise and repatriate the value of the said GRI forms within the prescribed period and had contravened the provisions of FEMA, 1999 and Regulation of 2000 and a penalty of Rs. 40,00,000/- was imposed on M/s. Siris Ltd. (the company) under Section 13 and a penalty of Rs. 5,00,000/- each has been imposed against appellants G. Rama Raju, Managing Director and G. Subha Raju, Executive Director respectively.

[4] Aggrieved from the Impugned Order of the Special Director Appeal No. 284/2009 has been filed by G. Rama Raju, Managing Director, while Appeal No. 285/2009 has been preferred by M/s. Siris Ltd. and Appeal No. 286/2009 has been preferred by G. Subha Raju, Executive Director. Since all the appeals arise out of the common adjudication order, therefore, the appeals are being disposed of by a common order.

[5] Ld. Counsel for the appellants has submitted that due to the fact the drugs and their formulations were not approved by the buyers and the goods were rejected arbitrarily, unqualified write off of outstanding export proceeds in respect of all the GRI forms were permitted however in the matter of GRI form No. AT 0127134 of US $ 66,384.20 and GRI form No. AT 128198 amounting to US $ 61,000 write off was permitted by the RBI with a stipulation that the State Bank of Mauritius can write off the amount only after obtaining no objection from the Enforcement Directorate. It has been submitted that the impugned order is arbitrary and is opposed to the principles of natural justice and is liable to be set aside. The RBI is the final authority to permit or decline the write off in respect of unrealised export proceeds and since the RBI had permitted the State Bank of Mauritius to write off the unrealised export proceeds in respect of two GRI forms pertaining to the appellant company the no objection required to be obtained. from the ED was only a procedural formality and ought to have been granted in the matter of course. Further submission is that the Special Director has erred in presuming that the authorized dealer (bank) was required to directly approach the ED. The permission of the RBI was placed before the Special Director who ought to have endorsed it to the Directorate. Further the Special Director adopted a mechanical and pedantic approach and rejected the write off. Submission is that the impugned order is self-contradictory as the Special Director on the one hand has rejected the write off himself and on the other hand has held that State Bank of Mauritius ought to have approached the Directorate for obtaining no objection and since the bank had not approached the Directorate no relief can be granted. The Special Director had no authority to reject the request himself. The; rejection is incompetent. Ld. Counsel for the appellant has submitted that the determination of amount of penalty upon the appellants is illegal, arbitrary and excessive and no reasons have been assigned for imposition of such high penalties. It is also contended that the Managing Director and the Executive Directors cannot be held liable without discussing their roles. Submission is that no contravention of Sections 7 and 8 of FEMA and Regulations 3, 8, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 is made out. It has also been submitted that the Special Director has failed to appreciate the fact that the RBI after due inquiry had come to the conclusion that the appellant had made reasonable efforts to realise the export proceeds and upon its satisfaction had permitted the write off. The Special Director had no authority to overturn the decision of the RBI and decline the write off. The transactions took place around 1999 and the proceedings were initiated in the year 2007, thus the proceeds could not have been initiated as they were clearly barred by Section 49(3) of FEMA, 1999. Further submission is that the penalty for non-realisation of export proceeds is assessed on the presumption that the exporter had failed to take necessary steps for realisation and repatriation of the export proceeds. But this presumption is rebuttable. Mere non-realisation of export proceeds per se is not punishable. The fact remains that the drugs and drug formulations exported by the appellant had not been approved and considering the facts and circumstances RBI had allowed the write off in respect of all GRI terms except two GRI forms for which only a formality of obtaining a no objection certificate was set forth. Further the Adjudicating Officer misunderstood the legal position. It has also been argued that the hearing had concluded on 30-10-2008 and the impugned order was passed on 18-8-2009 i.e. after a gap of more than 10 and a half month. It has been submitted that the impugned order is neither speaking nor reasoned and is liable to be set aside with a direction to the respondent to accept the write off in respect of the two GRI forms by granting to State Bank of Mauritius.

[6] Ms. Natasha Sarkar legal consultant has defended the impugned order and has submitted that the appellant company had no authority to seek write off directly. The RBI had granted conditional write off subject to obtaining no objection by the authorized dealer i.e. State Bank of Mauritius from the ED. Ld. Legal consultant has candidly admitted that the Special Director while adjudicating the matter had no authority to refuse grant of no objection on behalf of ED. No objection certificate had to be obtained from the ED and not from Special Director acting in the capacity of Adjudicating Officer who was not authorized or competent to grant no objection. She has further submitted that the impugned order is a reasoned and speaking order and is perfectly legal. The State Bank of Mauritius, despite persuasion by the appellant did not approach the ED for obtaining no objection. This shows that the bank was not satisfied with the efforts and the reasons put forward by the appellant company for grant of write off in respect of the two GRI forms. She has further submitted that though the Special Director has rejected the plea of granting no objection has also held that the State Bank of Mauritius had to approach the ED for grant of no objection and since the bank had not approached, therefore, write off was not allowed. There is no illegality or infirmity in the order and the same is sustainable. The alleged contraventions are established. Reliance has also been placed on the judgment of the Hon'ble Supreme Court of India in LIC v. Escorts Ltd. and Others -MANU /SC/0015/1985.

[7] We have considered the submissions of the ld. Counsel for the appellants as well as ld. Legal Consultant and are of the opinion that the controversy is limited in the instant appeals to only two GRI forms No. AT 0127134, dated 20-8-2000 for US $ 66,384.20 and GRI form No. AT 0128198, dated 10-11-2000 for US $ 61,000. It is not disputed that in respect of rest of the GRI forms which were also the subject matter of the show cause notice the appellant company has been granted write off by the RBI on different dates and in view of the write off no contravention under FEMA in respect of the said GRI forms is made out. It has been contended on behalf of the appellants that the drugs exported by the appellant company were rejected by the buyers on the ground that the drugs and their formulations were not according to the required standards. Though it has been claimed that efforts for realisation and repatriation of the export proceeds were made by the appellant company which were adequate and bona fide, however, the attempts did not succeeds. It has been further, contended that in respect of two GRI forms which are the subject matter of dispute in the instant appeals, the RBI considering the efforts made by the appellant company had advised the authorized dealer i.e. State Bank of Mauritius, that unrealised export bills under GRI form No. AT 0127134 for US $ 66384.20 and GRI form No. AT 128198 for US $ 61,000 may be written off subject to obtaining no objection from ED as has been conveyed by the authorized dealer (State Bank of India) vide communication dated 27-9-2008 (paper No. 76 of the paper book). Thus, it has been claimed that write off was permitted subject to the formality of obtaining no objection from the ED. In this light it has been claimed that since the bank despite the requests did not approach the ED for grant of no objection the appellant company which was directly affected, approached the ED through Adjudicating Officer who was duly bound to forward the request to the Enforcement Directorate. It has also been contended that the Special Director had no authority to himself reject the plea for grant of no objection certificate. It has been contended on behalf of the respondent, Enforcement Directorate that RBI, while in respect of other GRI forms had granted unqualified waiver however it did not grant waiver in respect of the said two GRI forms as it was not satisfied that the efforts made being sufficient and bona fide on the part of the appellant, therefore, it advised the authorized dealer to grant write off, subject to obtaining no objection from the ED. Thus it was for the authorized dealer to have approached the ED and the appellant company had no right or authority to apply to the Special Director/Adjudicating Officer to grant write off.

[8] We are of the view that the arguments advanced by the ld. Counsel for the appellants that the appellant could also have made a plea for grant of no objection from the ED through Special Director/Adjudicating Officer, and he was bound to forward the request to the ED, has no merit. In view of the decision of Hon'ble Supreme Court in LIC v. Escorts Ltd. and Ors. wherein it has been held in para 86 of the judgment that there is no provision of Act which enables individual or authority functioning outside the Act to determine for his own or its own purpose, whether the RBI was right or wrong in granting permission under Section 29(1) of the Act. Under said provision it is the RBI which constituted and entrusted with the task of regulating and conserving the foreign exchange. The' Hon'ble Supreme Court has further held that if one may use such an expression, RBI is the "custodian-general" of foreign exchange. The Hon'ble Apex Court has further observed that the task of enforcement is left to the Director of Enforcement but it is RBI and the RBI alone that has to decide whether permission may or may not be granted. In view of the case law relied upon, we hold that there was a requirement in the instant matter in the light of the advice of the RBI to authorized dealer that the authorized dealer should itself have approached the ED for obtaining no objection. It was not permissible to the appellant to make z. plea before the Adjudicating Officer treating him to be Enforcement Directorate: and without making any specific request except that the plea for grant of no objection should have been forwarded by the Special Director to the ED. We do not find any such request having been made by the appellant company to the Adjudicating Officer. The Special Director/Adjudicating Officer might have been an officer of the ED but since he was not specifically assigned the function of deciding as to in which matters no objection is to be issued or declined therefore he had no authority to take a decision in such matter. His authority was only limited to adjudicating the matter pending before him. Therefore, he was incompetent to reject the plea for grant of no objection on behalf of the ED.

[9] Though it has been argued on behalf of the appellants that efforts for realization of the export proceeds in respect of the two disputed GRI forms were made, but the Adjudicating Officer has recorded in his findings that the noticee company had failed to take all reasonable steps to realize or repatriate the export value of the goods to the extent of US $ 1,27,384.20 within the prescribed period and in prescribed manner. There is no proof of appellants having made any effort for recovery of proceeds on record. We do not find any infirmity in the findings of Adjudicating Officer.

[10] In the adjudication order impugned the Special Director has held all the appellants liable for contravention of Sections 7 and 8 of FEMA, 1999 r/w Regulations 3, 8, 9 of Regulations, 2000 and has imposed penalty against all the three appellants under Section 13 of FEMA, 1999. While imposing the penalty against the two directors Section 42(1) of FEMA, 1999 has also been invoked.

[11] Section 7 of FEMA, 1999 provides that every exporter of goods shall furnish to the RBI or other authority a declaration containing true and correct material particulars showing the full export value and in case the full value is not ascertainable the value which he expects to receive on the sale of goods in the market outside India. Clause (b) of sub-section (i) of Section 7 of Regulations furnishing to the RBI the information required by the bank for the purpose of realization of export proceeds by the exporter. Sub-section (ii) of Section 7 provides that the RBI may direct any exporter to comply with information regarding export value of the goods as it deems fit and sub-section (iii) of Section 7 prescribes that the declaration shall contain the true and correct material particulars in relation to payment of such services to the Reserve Bank or such other authority by the exporter. We do not find specific allegation of violation of any of the clauses of Section 7 by the appellants. The Adjudicating Officer has also not analysed as to which clause of Section 7 has been contravened by the appellants. Since in the impugned order it has not been specified as to what breach has been committed by the appellants therefore we are of the view that the Enforcement Directorate has failed to establish any contravention of Section 7 of FEMA, 1999 and the finding of the Adjudicating Officer is not sustainable in this regard.

[12] As regards the alleged contravention of Section 8 of FEMA, we do not find any material on record as has been observed earlier to substantiate the plea that serious efforts were undertaken by the appellant company for realization or repatriation of the export proceeds and only correspondence that took place in 2007-08 has been filed as proof in this regard. Thus in the absence of any substantial credible evidence to show that genuine and bona fide attempts for realization and repatriation of the amount of two disputed GRI forms were undertaken by the appellant we are of the view that the finding of the Adjudicating Officer holding the appellant guilty of contravention of Section 8 of FEMA, 1999 is well founded and is legally correct and maintainable.

[13] As regards the interpretation of Section 42(1) of FEMA, 1999 that in case of a company, the Section provides every person who at the time, the contravention was committed, was incharge and was responsible to the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly, to our mind Section 42(1) permits the presumption to be drawn regarding the involvement/credibility by the person who was incharge and responsible to the company for the conduct of the business. There is a requirement that evidence has to be led/produced clearly showing the role of the Managing Director and Director and the extent of their involvement in the affairs of the company. The Adjudicating Officer has not discussed the role or involvement of the two appellants who are stated to be Managing Director and Director respectively of the company and without any discussion on their involvement or pointing out the lapse on their part penalty has been imposed with the invocation of deeming clause by the Adjudicating Officer. It has been argued by ld. Counsel for the appellant that the penalty imposed is excessive, arbitrary and illegal. In view of the judgment of the Hon'ble Supreme Court in National Small Industries v. Harmeet Singh Paintal and Anr. in Criminal Appeal No. 320-336/2010, dated 15-2-2010 and also judgments of Hon'ble Delhi High Court in the matter of Kavita Dogra v. Director of Enforcement in Criminal Appeal No. 44/2008, dated 15-2-2014, and also judgment of Hon'ble Delhi High Court in Umesh K. Mody v. Deputy Director of Enforcement in Criminal Appeal No. 368/2008, dated 31-7-2014 in which Section 68 of FERA which is similar to Section 42 of FEMA regarding fixation of liability of the persons involved in the affairs of the company it has been held that a mere statement is not sufficient to the effect that such and such person was incharge of, and cannot be made vicariously liable. The averments should state that the person who was liable for the commission of offence of the company was both incharge and responsible for the conduct of the business of the company. In view of the above, we are of the view that appellant G. Subha Raju of Appeal No. 286/2009 against whom no specific role or involvement has been alleged is entitled to benefit of and cannot be held guilty and penalized with the help of Section 42(1) of FEMA. Though no specific allegation against appellant G. Rama Raju, Managing Director has been made regarding his role or involvement but we are not inclined to give benefit of doubt in this regard to the said appellant on the basis that he was the Managing Director and his involvement and his active role and full knowledge of the facts cannot be doubted by in the light of his designation.

[14] The appellants have also been held liable for contravention of Regulations 3, 8, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. We have perused relevant clauses of the Regulations, 2000 and find that Regulation 3 requires a declaration regarding export of goods and services in the prescribed format along with supporting evidence as may be specified to the specified authority. There is no allegation that this regulation was violated by the appellants. Regulation 8 prescribes manner of payment of export value of goods. Since undisputedly no payment was made the regulation is not applicable. Regulation 9 prescribes the period within which export value of goods is to be realised and repatriated to India. However, in the instant matter this regulation also does not apply because except for the two disputed GRI forms write off in respect of the rest was granted by the bank. In respect of the two GRI forms the subject matter of the instant appeals, the RBI has approved write off by the authorized dealer subject to obtaining no dues from the Enforcement Directorate. Thus the final call or decision for grant or refusal of write off was to be taken by the authorized dealer (State Bank of Mauritius) subject to obtaining no objection from the Enforcement Directorate and admittedly the authorized dealer did not approach the Enforcement Directorate for obtaining no objection. Therefore, appellants cannot be held liable for breach of Regulation 9 as they have pleaded that export proceeds could not be realized on account of rejection of the drugs and their formulation by the buyers. As far as Regulation 13 is concerned, the same according to us is not attracted in the instant matter as there is no allegation that the appellants without the permission of RBI or authorized dealer failed to represent the full export value of the goods correctly. Thus to our mind the appellants appear to have been wrongly indicted for contravention of Regulations 3, 8, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000.

[15] Considering the facts and circumstances and taking a holistic view, we are of the view that since a period of almost 15 years has passed since the transactions took place and the RBI permitted authorized dealer to allow write off in respect of the two disputed GRI forms also subject to obtaining no objection however the authorized dealer did not approach the Enforcement Directorate. In our estimation there must have been some degree of satisfaction that is why approval to the authorized dealer to grant write off subject to certain conditions was allowed, the situation remains that the write off in respect of the two transactions through two disputed GRI forms has not been finally allowed. The contravention of Section 8 of FEMA, 1999 against the appellant company and the appellant G. Rama Raju, Managing Director r/w Section 42(1) of FEMA is made out. Since the amount of penalty imposed against the company as well as against the appellant G. Rama Raju, Managing Director has been imposed without assigning any reason for determination of the amount, therefore considering the long gap of the alleged contravention in our opinion the ends of justice will be met if the penalty of Rs. 40 lakhs imposed against the company M/s. Siris Ltd. in Appeal No. 285/2009 is reduced to Rs. 30 lakhs while the penalty of Rs. 5 lakhs imposed against G. Rama Raju in Appeal No. 284/2009 is reduced to Rs. 3 lakhs and the order of the Adjudicating Officer regarding imposition of penalty against appellant G. Subha Raju, Executive Director appellant in Appeal No. 286/2009 is set aside.

[16] Appeal No. 286/2009 is allowed and the order for alleged contravention and imposition of penalty against him is set aside. Appeal Nos. 284/2009 and 285/2009 are partly allowed with the modification that appellant G. Rama Raju, Managing Director in Appeal No. 284/2009 is held liable for contravention under Section 8 r/w Section 42(1) of FEMA, 1999 instead of Sections 7 and 8 of FEMA, 1999 r/w Regulations 3, 8, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and the amount of penalty imposed is reduced to Rs. 3 lakhs instead of Rs. 5 lakhs. In Appeal No. 285/2009 of M/s. Siris Ltd. the impugned order is modified to the extent that the appellant is held liable for contravention of Section 8 of FEMA, 1999 instead of Sections 7 and 8 of FEMA, 1999 r/w Regulations 3, 8, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and the amount of penalty imposed by the Adjudicating Officer of Rs. 40 lakhs is reduced to Rs. 30 lakhs. The appellants shall be entitled for adjustment of the amount, if any, deposited as pre-deposit under Section 19(1). As far as appellant G. Subha Raju is concerned, in case any pre-deposit has been made by him, he will be entitled for the refund of the same. The appeals are accordingly disposed of. No order as to costs.

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