FPA-FE-585/MUM/2000,FPA-FE-586/MUM/2000,FPA-FE-587/MUM/2000 & FPA-FE-588/MUM/2000
1. M/s. Hindustan Lever Ltd. filed an Appeal against the impugned adjudication order dated 17.7.2000 passed by the Special Director, Enforcement Directorate, Bombay under Section 18(2) read with Section 18(3) of the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as FERA) imposing a penalty of Rs.1.25 crores on the Appellant Company for the alleged violation of S.18 of the FERA in respect of non-recovery of the export proceeds relating to various items of exports made to Iraq, USSR etc., aggregating to Rs.295.34 lakhs.
2. Personal penalty of Mr. D.M. Buckle of Rs. 25 lakhs has been imposed on Shri K.B. Dadiseth and S.M. Dutta each as wholetime directorsof Hindustan Lever Ltd., in connection with the non-realization of certain export sale proceeds by Hindustan Lever Ltd. of which the Appellant was Whole Time Director.
3. The brief facts are that the Appellant is one of the Largest Exporters in this country. The export turnover of the Appellant and its wholly owned FPA-FE-585-588-MUM-2000 Page 3 of 35 subsidiary Ind Export Ltd. for the relevant period, i.e., 1982-1991, was approximately Rs.967 crores. The outstanding amount in respect of which the Show Cause Notice was issued and the order passed, amounted to 0.3% of the total export turnover for the relevant period.
4. The case of Appellant was that in commercial transactions, whether domestic or exports, debts and business risks are inherent and inevitable though the Appellant had aexcellent track record in respect of recovery of export sale proceeds and the Appellant had achieved an export sale recovery position of more than 99.9% over the last 20 years. It was alleged that the Appellant Company is a Super Star Trading house which has won numerous export awards and it has opened up export markets in non-traditional commodities and has won customers in non-traditional overseas markets. The Appellant Companys exports consist of an extremely wide range of products including, Tea, Coffee, Marine products, Soaps and Cosmetics, Caster Oil, Basmati Rice, Mushrooms. Out of its said total exports of Rs.967/- crores between 1982 and 1991, which is the period under consideration in the Show Cause Notice, the Appellant Company has realised all export sale proceeds, except an amount of Rs.2.95 crores as stated in the Show Cause Notice.
5. There is no denial that the Appellant Company has thus realised about 99.7% of its total export sales and it is only in respect of an insignificant fraction of about 0.3% of its export sales. It was stated by the appellant it was due to unavoidable circumstances, it is unable to recover the export sale proceeds for reasons totally beyond control, despite the best efforts made by the Appellant Company. FPA-FE-585-588-MUM-2000 Page 4 of 35
6. It was submitted that bad and doubtful debts to a certain extent are an inevitable incidence of every trading business and particularly export business where the customer is located thousands of miles away and is subject to a different legal system and the law enforcement authorities who may not always co-operate with the Indian Exporters.
7. The Appellant Company Directors with the alleged breach or offense purported to be attributed to them in the Show Cause Notice dated 25.11.1993 by the Enforcement Directorate. The replies filed were by the Appellant Company not only on its own behalf but is also for the Directors.
8. Initially, the hearings in respect of Show Cause Notice were to be held in Delhi. The proceedings were then transferred to Mumbai in the year 1994. The Appellant in its reply pointed out that as far as the said export recoveries covered by the Show Cause Notice were concerned, subsequent to the exports to Iraq, there was an international embargo on dealing with Iraq and sanctions were imposed by the United Nations. As far as the exports to USSR are concerned, the Appellant pointed out that the Union of Soviet Socialist Republic disintegrated and the entire State System prevailing in Russia had undergone drastic changes. The State run Enterprises had collapsed or became defunct. The Appellant submits that these facts were never raised as points in dispute as these were matters of public knowledge and were universally known. Not only the Appellant but also several other Exporters to Iraq were constantly following up the matter for the recovery of exports proceeds through the Government of India, who in turn, had taken up the matter with the concerned authorities.
9. When it was explained, the hearings had been adjourned from time to time by the Special Director, to ascertain the factual position with regard to the FPA-FE-585-588-MUM-2000 Page 5 of 35 embargo imposed by the United Nations on Iraq and also to note the existence of extension of time by the Reserve Bank of Indian with regard to the recovery of export proceeds from Iraq, and also the status on the approval for waiver / write off of the balance export proceeds by the Reserve Bank of India. The Reserve Bank of India had granted the necessary extensions for Iraq mainly on the ground that in ordinary circumstances, it was not possible for any individual exporter to take steps against any Iraqi importer.
10. At the last personal hearing, which was held on 24.6.99, the matter was adjourned for 6.9.99. When the matter was adjourned to 6.9.1999, the Appellant Companys Representatives did not appear for the hearing asaccording to him they were under the bonafide impression that they would receive a formal notice for the hearing. It was also stated that due to transfer of the concerned officer of the Appellant Company, namely Mr. Robin Banerjee, G.M.(Commercial), Exports Division, at Mumbai effective from 1.7.1999 and take over of the said assignment by another officer of the company, namely, Mr.
V.Ramesh as G.M.(Commercial), Exports Division, based at Chennai, from 1.7.1999. Mr. Robin Banerjee soon thereafter resigned and left the service of the Appellant Company and Mr. V.Ramesh being new to this job and being based at Chennai, instead of at Mumbai, took some time to settle down in taking charge of his wider responsibilities. These organizational changes also resulted in certain amount of dislocation and communication gap leading to the Appellants not attending the scheduled hearing on 6.9.1999.
11. It is alleged without prejudice thatthe Appellant ought to have appeared at the hearing on 6.9.1999. It was the case of the Appellant that the Special Director ought not to have proceeded to pass the order more than 10 months after the last hearing but atleast should have made some efforts to ascertain the FPA-FE-585-588-MUM-2000 Page 6 of 35 factual position in the light of the matter having been adjourned from time to time over a period of more than 6 years and it would have been more proper and appropriate for the Special Director to have atleast enquired from the Appellant as to the latest factual position when the matter was being adjourned to review the same, thus it was a mis-carriage of justice because had the Special Director verified the latest factual position, the Appellant would have placed on record before the Special Director to the effect that infactthat the Reserve Bank of India had itself granted extension of time valid upto 31.12.2000 for recovery of the export sale proceeds from Iraq. It would have also placed on record that the Appellant had made one more application in July 1999 with the Reserve Bank of India through the Authorised Dealers to write off of the balance dues.
12. The Reserve Bank of India had, based on the second application, advised the Authorised Dealers to consider the said write off under para 6C.14 of the Exchange Control Manualand one of the three Authorised Dealers had accordingly granted the G.R. waiver.
13. The Special Director however proceeded and passed an order holding that the Appellant had violated the provisions of Section 18 of FERA, on the basis that the Appellant had failed to take legal proceedings and / or steps through the Indian Embassy well in time despite the best efforts made by the Appellant Company as alleged by the appellant.
14. It is stated by the Appellant that even if the Special Director had decided to raise a point in dispute that the Appellant was at default of not having taken reasonable steps, he ought to have given the Appellant a fresh opportunity to place on record the latest factual position and evidence, and the Appellant would have brought the following facts on record. FPA-FE-585-588-MUM-2000 Page 7 of 35
a) Exports to State Company for Foodstuff Trading, Iraq, Rs.2,01,25,000/-. The Appellant Company made exports to Iraq of an aggregate value of Rs.2,01,25,000/- under GR Nos GK 530946, GR Nos. GK 530949 and GR Nos.148919 respectively. The items exported were food stuff (tea). These shipments were made in May/June 1989 on 365 days L/C terms under the Export Promotion Guarantee Scheme. The payment of a part of thisamounting to $ 6,25,000/- fell due on 18.5.1990 and the balance amount of $ 5,25,000 fell due on 27.6.1990. Both the Appellant Company and its Authorised Dealers maintained continuous follow up with the Customer, namely, the State Company for Food Stuff Trading and their bankers, namely, Rasheed, Bank, to make the payment as per the L/C Terms. Both the company and the bankers continued to maintain that the payments are under process. However, the U.N. imposed an embargo on all exports as well as imports to Iraq and froze all the assets and the bank accounts of Iraq. The customer, finally informed on 1.11.1990 that their assets have been frozen and they are unable to make the payment. The bankers, namely, Rasheed Bank formally communicated on 15.12.1990 that due to sanctions imposed, payments are pending till further notice and that they are not liable for any interest. Copies of the correspondences between the Appellant Company and the Authorised Dealer, Iraq Customer and their Bankers are annexed and marked herein as Annexure 14 (Collectively). The U.N. embargo has continued right upto today. So long as the U.N. embargo continues, it is absolutely impossible for the Appellant Company to take any steps or action whatsoever for recovery of its export FPA-FE-585-588-MUM-2000 Page 8 of 35 sale proceeds from Iraq. This position was fully appreciated by the Export Credit Guarantee Corporation of India (A Government of India Undertaking) which was satisfied that despite its best efforts the Appellant Company was not in a position to recover its said export sale proceeds before the embargo was imposed and, therefore, ECGC released and paid to the Appellant Company approximately 90% of the outstanding export realization amount Rs.2.01 crores.
b) The ECGC along with EXIM Bank and Ministry of Commerce are having annual reviews at the Central Government level for the recovery of all the unrealized exports outstanding from Iraq on behalf of the Indian Exporters which includes this Appellant Company. The Appellant Company had been regularly applying to The Reserve Bank of India of the necessary G.R. Extensions. The Reserve Bank, having regard to the continuing embargo, has been granting extensions of the G.R. from 1990 till date. In August 1999 the RBI granted extension of time to the Appellant Company upto 31.12.2000 for recovery of the said export sale proceeds. A copy of the said extension letter has filed as Annexure 16. Thus, even in our view at least upto 31.12.2000 no such penalty can at all be imposed on the Appellant Company in law in respect of the said Iraqi export sale proceeds.
C) Non-realisation of Export Sale Proceeds from Russia Rs.21,30,319/-. These exports were made to State sponsored Co-Operative Societies at Moscow, USSR. The amount of Rs.3,72,728.00 was deducted due to quality problem and an amount of Rs.17,57,591 was defaulted by the overseas buyers. The shipments were effected during the Period 1987 to FPA-FE-585-588-MUM-2000 Page 9 of 35 1991 and shortly thereafter, the USSR went through an unprecedented upheaval and disintegration which lead to a complete collapse of its governmental system as well as economy. The Co-Operative Societies which had purchased the goods were State sponsored bodies which were part of the old State controlled regime. With the collapse of the said system, these Co-Operative Societies became defunct and it was impossible to realize any money from them. The Appellant has, by its letters dated 25.1.95, 8.7.99 and 25.8.99, submitted details/clarifications to RBI, Mumbai and the Authorised Dealers for GR Waiver and has also made repeated attempts to expedite this waiver which, however, is still pending.
D) Export to C&J International of USA-Rs.9,69,255/- This was an export of shoes under GR No.931336 and GR No.931338 The export was made on documents against payment to the Bank. However, the Buyer C & J International, fraudulently obtained possession of the Shipping documents and took delivery of the goods without making payment to the Appellants Bank. Thereafter, the Buyer disappeared and has not been traceable. Appreciating this position, ECGC released the amount of Rs.5 lakhs to the Appellant Company against these outstanding thereby acknowledging the position that it was not possible for the Appellant Company to recover and realize these export sale proceeds. The Appellant Company has also submitted its details/clarifications to THE RESERVE BANK OF INDIA, Mumbai and the Authorised Dealers for GR waiver vide Appellants letters dated 25.1.95, 8.7.99 and 25.8.99 respectively. The said Application FPA-FE-585-588-MUM-2000 Page 10 of 35 for waiver is still pending. However, without at all considering the abovementioned facts, the impugned order imposes penalty on the Appellant Company in respect of this amount also.
E) Miscellaneous unrealizable amounts aggregating to Rs.11,11,967/- These represent exports made during the period 1983 to 1991 to numerous parties and are individually of very small value. The reasons for the non-realisation of these miscellaneous amounts are set out in Annexure 17. These bad debts constitute a microscopic portion of the Appellant Companys total export sales. As the amount due from each party is negligible, it would, in fact, it be a waste of foreign exchange to institute legal proceedings against these parties for recovery of the amounts in question. Out of these amounts, the Appellant Company has received GR Waiver, dated 6.9.1999 from Punjab National Bank in respect of the value of Rs.1,56,364/-. The Appellant Companys applications for GR Waivers for the balance amounts aggregating to Rs.9,55,603/- are pending.
F) Balance Amount of Rs.45,60,976/- The Special Director when issuing the impugned order, dated, 17.7.2000, has already acknowledged that the above stated amount had already been adjudicated vide Order No.SDE(R)/I/50/93, dated 4.10.1993 and a penalty of Rs.5,00,000/- imposed and paid by the Appellant Company. FPA-FE-585-588-MUM-2000 Page 11 of 35
G) It would be impractical for any exporter who ran into trouble with regard to their exports made to Iraq and USSR to have filed a legal proceeding in respect thereof, in the face of the prevailing conditions and situation. The Special Director erroneously proceeded on the assumption that follow up through the Indian Embassy would have helped in recovery of the export sale proceeds notwithstanding the said prevailing conditions.
H) The ECGC on behalf of the Appellant and various other exporters, was pursuing the matter on a Government to Government level for the recovery of debts from all Iraqi companies. In respect of the exports made from India to Iraq by the Appellant Company as well as the large number of other exporters of merchant goods and construction projects, the issue of recovery of the outstanding exports realisations has been taken up periodically by the Govt. of India on behalf of all Indian Exporters with the Govt. of Iraq, during the meetings of the INDO-IRAQ Joint Commission held annually. The last meeting was held on 19.7.1999 when the issue of the outstanding export dues from Iraq was once again taken up by the Government of India on behalf of the Indian Exporters. The Appellant Company was informed that the Iraqi Authorities had taken note of the said outstanding issue and reaffirmed their commitment to positively address the same soon after lifting of the U.N. sanction from Iraq. The Appellant Company has received a letter dated 16.8.2000 from ECGC, confirming the deliberations of the last meeting of the Indo-Iraq Joint Commission held on 19.7.1999. A copy of the said letter is already filed to as FPA-FE-585-588-MUM-2000 Page 12 of 35 Annexure 15. It was alleged that the Appellant has been seriously prejudiced by reason of the erroneous assumption made by the Special Director as to the alleged failure on the part of the Appellant to take legal steps for the recovery of the export sale proceeds notwithstanding the U.N. Embargo which continues till date.
15. In nutshell the case of appellant was that as far as Iraq and USSR it was impractical and fruitless for the Exporter to file any legal proceedings. No such practical option was ever available to the Exporters including the Appellant, Filing of legal proceedings for export recoveries were impossible as this has tobe seen in the context of whether it was at all practical and possible to do so. The only option available was to pursue the matter through the Government of India, which the Appellant has been doing in the Iraqi matter. The Appellant submits that the question as to whether the Exporter has taken reasonable steps to realize the Foreign Exchange due is a question which has to be decided on the facts and circumstances of the case. One of the issues to be taken into consideration is whether the Exporter has been in touch with the Reserve Bank and whether the matter of the said recovery had been taken at the level of the Government. The Appellants case is that the Appellant was constantly in touch with Reserve Bank of India as well as the Governmental Authorities for the extension of time for recovery of debts from Iraq and the Reserve Bank of India through Authorised dealers for write off of balance dues including from the erstwhile U.S.S.R.
16. The Appellantsubmits that as far as USSR is concerned, the concerned State Run Organisation became totally defunct since its business had been wound up and therefore, there was no question of passing any order for non recovery of the export proceeds. The Appellant submitsthat as far as Russia is FPA-FE-585-588-MUM-2000 Page 13 of 35 concerned there was no prevailing legal system to enable the Exporters to take legal proceedings, since in such a situation there would have been a wasteful outflow of valuable foreign exchange to recover debts impossible to recover. The Appellant submits that whilst considering whether legal steps is one of the alternatives available to the Exporter, the Special Director ought to have taken into consideration is whether any funds were recoverable or whether the legal expenses is a further drain on the Countrys valuable foreign exchange reserves. The Appellant, therefore, submits that the only practical recourse available to the Exporter was to apply to the Reserve Bank of India, through the Authorised Dealers for write off of the amount; which applications were made to the Reserve Bank of India in 1995 and then followed up.
17. It was stated by the appellant that the following developments were of paramount importance which ought to be considered in order to avoid miscarriage of justice, which are as follows:
a) The Appellant Company received further formal extension of G.R. from Reserve Bank of India, vide, their letter dated 12.8.1999, extending the time upto 31.12.2000, for realisation of sales proceeds on exports made to Iraq.
b) The Appellant Company had once again approached the Reserve Bank of India through the Authorised Dealers on 8.7.1999, for G.R. waiver of the entire balance export outstandings of Rs.87,72,517/- the Reserve Bank of India, vide its letter dated 7.8.1999, had advised the Authorised Dealers to consider the write off, of the overdue export bills of the Appellant Company under para 6C.14 of the Exchange Control Manual 1993. The Appellant Company had FPA-FE-585-588-MUM-2000 Page 14 of 35 provided various clarifications to the Authorised Dealers on 25.8.1999. Based on the clarifications, Punjab National Bank, one of the Authorised Dealers gave approval for write off, of Export Earnings outstandings of Rs.1,56,364/- on 6.9.1999. The approval for the write off, of the balance outstandings, is still awaited from the other two Authorised Dealers, namely, State Bank of India and Allahabad Bank to whom the applications had already been made. Copies of the three letters dated 8.7.1999, addressed to the Reserve Bank of India, through the three (3) Authorised Dealers, copies of letters dated 7.8.1999 addressed by the Reserve Bank of India to the Authorised Dealers and copies of the three letters, dated 25.8.1999 from the Appellant Company giving clarifications to the Authorised Dealers are filed as Annexure 18(colly), Annexure 19(colly) and Annexure 20 (colly), respectively.
18. However, despite of the same, the appellant havereceipt of impugned order dated 17.7.2000, (received by the Appellant on 21.7.2000), whereby by Adjudicating authority has imposed a penalty of Rs.1.25 crores on the Appellant Company and Rs.25 lacs on each 3 Directors.
19. The three Directors have also filed the separate appeals in his appeal Mr. K.B. Dadiseth, it is pleaded that he had no personal involvement whatsoever with the exports made by Hindustan Lever Ltd., or the realization of the export sale proceeds. These matters were entrusted to the Export Department of Hindustan Lever Ltd. and the same were attended to by competent professional Managers who worked under the control of the then Export Director/Vice President. Consequently, he cannot be held to be responsible or liable for the said alleged breach of FERA committed by Hindustan Lever Ltd. No vicarious FPA-FE-585-588-MUM-2000 Page 15 of 35 liability for any such alleged breach of FERA committed by Hindustan Lever Ltd. can at all be visited upon the Appellant. No separate Show Cause Notice was addressed to the Appellant nor was any specific allegation made against the Appellant to the effect that the Appellant was in charge of and was responsible to the Company for the conduct of export business of the company and consequently could not be regarded as being involved in the said non-realisation of export sale proceeds. 19.1 It was alleged by them that in the absence of any clear and specific allegation in this regard, the notice must fail. However, by the impugned order, the Special Director has ignored the legal mandate and judicial decisions, which assume finality and are binding on him, and erroneously proceeded to impose a penalty on the Appellant herein. 19.2. The existence of the requisite ingredients for imposition of vicarious liability under S.68 of the FERA was also not averred or alleged in the Show Cause Notice or in the Opportunity Notice. 19.3. If the Special Director had decided to proceed on the assumption that the Appellant was at default, he ought to have given the Appellant an opportunity to show cause against the same and if he had done so, the Appellant would have brought the relevant facts on record. They were not incharge of and responsible for the conduct of the alleged business of the Appellant Company but for the reasons best known to the Respondent the same has not been dealt with and instead an order without giving them a reasonable opportunity has been passed wherein it has been stated that the Appellant Company tried to pass the FPA-FE-585-588-MUM-2000 Page 16 of 35 responsibility to another person, other than three notices in the Show Cause Notice. 19.4. The Director of a company cannot be held responsible if he didnt have the knowledge of the alleged contravention and had exercised all due diligence to prevent the commission of such an offense. The Respondent in the facts and circumstances of the present case could not be said to have the knowledge of the alleged contravention. He had exercised all due diligence to prevent the commission of such an offense and the alleged omission cannot be attributable to any neglect on the part of the Director.
20. In the case of Shri S.M. Dutta, Director of Hindustan Lever Ltd. who has filed the appeal. 20.1. It was submitted by him that, in any event, he had no personal involvement whatsoever with the exports made by Hindustan Lever Ltd., or the realization of the export sale proceeds. These matters were entrusted to the Export Department of Hindustan Lever Ltd. and the same were attended to by competent professional Managers who worked under the control of the then Export Director/Vice President. Consequently, the Appellant cannot possibly be held to be responsible or liable for the said alleged breach of FERA.There was neither in fact or in law any breach of FERA which was at all committed by Hindustan Lever Ltd. 20.2. No separate Show Cause Notice was addressed to the Appellant nor was any specific allegation made against the Appellant to the effect that the Appellant was in charge of and was responsible to the Company for the conduct FPA-FE-585-588-MUM-2000 Page 17 of 35 of export business of the company and consequently could not be regarded as being involved in the said non-realisation of export sale proceeds. 20.3. In the absence of any clear and specific allegation in this regard, the notice must fail. However, by the impugned order, the Special Director has ignored the legal mandate and judicial decisions, which assume finality and are binding on him, and erroneously proceeded to impose a penalty on the Appellant herein.
21. The similar is the stand taken by another appellant Mr. D.M. Buckle. All the Directors have now retires.
22. The Reserve Bank of India finally intimated the Authorised dealers to write off the dues under para 6C.14, of the ECM and one of the Authorised Dealers had subsequently approved the write off and balance action is pending from the other two Authorised Dealers.
23. The hearing in the above appeal took place on 02.08.2018. At the said hearing reference was made to the letter dated 11.10.2006 sent to the Appellant by the Authorised Dealer, State Bank of India, Commercial Branch, 24, Park Street, Kolkata, communicating that the appropriate authority has approved writing off the captioned export collection bills on 27.09.2006, which related to the GR Numbers referred to therein for exports made to Iraq.
24. This Tribunal sought further clarification regarding the approval referred to in the aforesaid letter dated 11.10.2006 sent by the authorised dealer to the Appellant but the letter issued by the RBI is not placed on record. Later on, an FPA-FE-585-588-MUM-2000 Page 18 of 35 affidavit of Senior Manager has filed who deposed that the Appellant approached the officials of the State Bank of India, Park Street Branch at Kolkata to seek further clarification regarding the said letter conveying the approval of waiver, from the file and records in their office. However, since the said letter relates to the year 2006, the officials of the State Bank of India were unable to locate the old records,which are about 12 years old and in the absence of the relevant file containing the said letter, were unable to give any further details regarding the said approval. However, they were of the view that such letters conveying the approval of waiver are only sent to parties on the basis of the orders passed by the appropriate authority by officers of the bank who are responsible senior officers and would not write any such letter in the absence of any approval from the appropriate authority. No official who was functioning in the said branch of the State Bank of India in the year 2006 is available after a lapse of about 12 years. It was also deposed that the aforesaid letter dated 11.10.2006 itself categorically records that the approval for writing off the captioned export collection bills was granted on 27.09.2006. When such specific particulars are already set out in the said letter which is signed by the officer in charge of the rank of Assistant General Manager [Exports]. There would be no cause for any doubt that such approval was in fact given. During its regular dealings with regard to exports, they interact mainly with the authorised dealers and there is never any question of any doubt or verification with regard to the decisions taken and communications sent by the authorised dealer regarding any such matters. As such, when the aforesaid communication was received in the year 2006 there was no need or occasion to seek further details regarding the said approval and it was considered sufficient to act on the basis of the aforesaid letter of the authorised dealer. FPA-FE-585-588-MUM-2000 Page 19 of 35 24.1. It is deposed that the authorised dealer is even empowered by the Reserve Bank of India to itself grant waiver and communicate write off of the outstanding amounts against exports, in cases where the write off is less than 5% of the total amount of exports made by the exporter in the preceding year. This itself clearly shows the authority and responsibility given to the authorised dealer to deal with such matters.
25. It cannot be denied or in even there is no contrary evidence of any nature on behalf of the respondent in terms of paragraph 6C.14(i)(b) of the Exchange Control Manual, by Circular dated 31.03.2000, A.D. (M.A. Series) Circular No.4 (March 31, 2000), has been produced nor there is any denial in this regard wherein a letter was address by RBI to all authorised dealers in foreign exchange, it was clarified that the branch of the authorised dealer handling the relevant shipping documents may allow requests to write off unrealized portion of export bills subject, inter-alia, to the condition that the aggregate amount of write-off during the calendar year should not exceed 5% of the total export proceeds realized by the concerned exporter through its medium during the previous calendar year. Though, there is no letter produced before us written by RBI to the authorised dealer, but it is the admitted position that RBI has passed the circular in this respect and there is no denied in this regard.
26. The appellant in the present case has produced the letter from authorised dealer who in clear termsin the year 2006 when write-off was communicated by the authorised dealer, the State Bank of India, Park Street, Kolkata Branch, the said authorised dealer was itself authorised to grant write-off in respect of the amount of Rs. 2.01 crores relating to exports to Iraq. FPA-FE-585-588-MUM-2000 Page 20 of 35
27. Thus, the approval communicated by the authorised dealer by letter dated 11.10.2006 is valid and binding even if it is taken as an approval granted by the authorised dealer, the State Bank of India itself. A true copy of the said Circular dated 31.03.2000 is filed as Annexure-Dalongwith an additional affidavit. It is clear from the said letter that write off was duly granted in respect of the exports to Iraq in the sum of Rs. 2.01 crores.
28. Even, otherwise, the appellant has made out a solid case on meritin respect of the exports to Iraq, keeping in view of the serious political disturbances prevailing in Iraq for a long period of time, even the Rasheed Bank which is the National Bank of Iraq, from whom the amount was to be recovered against LCs, was unable to make payment as it was not operational. As such, in any event, such amounts were not recoverable and no default can even be alleged in respect thereof, on the part of the Appellant.
29. Once the major amount related to recoveries from Iraq to the extent of Rs.2.01 Crores in respect of non-recovery of this amount, waiver has been granted. The remaining amount which could not be recovered, is only about Rs.41 Lakhs which constitutes a negligible amount of 0.0423% of the total exports of Rs.967 Crores during the said period.
30. The above said amount of about Rs.41 Lakhs related to exports made to
5 other countries in about 18 small consignments, to differentparties, which had become irrecoverable in respect of which application for waiver was made and was pending during the pendency of the proceedings before the Special Director and remained pending even after the impugned order dated 17.7.2000 was passed by the Special Director. FPA-FE-585-588-MUM-2000 Page 21 of 35
31. Since small amounts of Rs. 41 lakhs from various parties were not recoverable and any attempt to initiate litigation to recover the same would have entailed higher expenditure in foreign exchange, which would have been counterproductive, keeping in view the guidelines as set out in the Exchange Control Manual for waiver, no purpose would have been served in initiating litigation for the aforesaid purpose, which would have been futile and counterproductive.
32. The relevant extract from Chapter 6C.14 (vi). write off of unrealized export bills 6C.14(i) . (d) The case falls under any of the under noted categories.
(vi) The cost of resorting to legal action would be disproportionate to the unrealized amount of the export bill or
33. Relating to the break up of the export of Rs.41 Lakhs to 5 countries, involving several parties and several transactions of small amounts, which had become irrecoverable are setout in a chart, to indicate that the question of recovery of such amounts did not arise and as such no action in respect thereof was called for, moreso, in the background that the said non-recoverable amount were only a miniscule percentage of less than 0.05% of the total exports of about Rs.967 Crores made by the Appellant, during the relevant period. A copy of the said Chart is filed as ANNEXURE-Galongwith an appeal.
34. Since these small amounts were not recoverable and even the cost of resorting to legal action would have been disproportionate, the conduct of the FPA-FE-585-588-MUM-2000 Page 22 of 35 appellant company was bonafide and reasonable. There is no case for imposition of penalty.
35. In the case of M/s. Hindustan Steel Ltd. Vs. State of Orissa 1969 (2) SCC 627 Para 8. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out.
36. It is the admitted position that a letter issued by RBI as late as 18.2.2009 sent in reply to the Appellants letter dated 4.2.2009, confirmed that the application for waiver was still pending. Copies of the aforesaid letters dated 4.2.2009 and 18.2.2009 are filed with the appeal as ANNEXURES C & D together with the note dated 25.4.2013 [ANNEXURE-E] containing particulars to co-relate the GRS/Invoice Nos. referred to in the aforesaid letter, in respect of which application for waiver was pending at the time of passing the impugned order dated 17.7.2000. FPA-FE-585-588-MUM-2000 Page 23 of 35
37. There is no denied that the prior to the impugned Order passed by the Special Director dated 17.07.2000, the position, with regard to exports to Iraq for Rs.2.01 Crores and to various countries for a total amount of Rs.41 lakhs, was as under:
(i) With regard to exports to Iraq for Rs.2.01 Crores, by letter dated 16.08.1999, extension of time was granted till 31.12.2000. A copy of the letter dated 16.08.1999 is filed as ANNEXURE-F. As such, till the expiry of the extended period, there could be no breach and no order of penalty could be passed by the impugned Orderdated 17.07.2000. It is settled law that when extension of time is granted, no penalty can be imposed.
(ii) With regard to the remaining exports to various other countries, the waiver application was pending and remained pending even after 17.07.2000, being the date of the impugned Order. It is settled law that no penalty could be imposed when the waiver application is still pending.
38. By the impugned order passed by the Special Director on 17.07.2000 a composite penalty of Rs.1.25 Crores was imposed against the Appellant Company, in respect of the aforesaid non-recovery of Rs.2.43 crores [consisting of Rs. 2.01 Crores relating to export to Iraq and Rs.41 Lakhs relating to exports to several other countries].
39. In view of the waiver already granted with regard to the major amount of export to Iraq in the sum of Rs.2.01 Crore, by letter of SBI dated 11.10.2006, the issue to be considered in the present Appeal relates to the remaining amount of Rs.41 Lakhs towards export to various countries in small lots. FPA-FE-585-588-MUM-2000 Page 24 of 35
40. No penalty in respect thereof could be imposed as the waiver application in respect thereof was pending when the impugned order dated 17.07.2000, was passed.
41. In the following decisions, it was hold that where (i)extension of time for recovery of outstanding amounts against exports, is granted, no penalty could be imposed. There is no breach till the expiry of the extended period and (ii) no penaltycan be imposed in respect of outstanding amount against exports whereapplications for waiver are pending. a. Rajnis International Vs. Director of Enforcement- 1995 (83) Taxman 25 (para 7)
7. It is clear from the findings of the learned Additional Director that although he took into consideration the fact that the appellant had applied for the write off the disputed GRI forms, he fee into error in treating that facts as of no consequence for the reason that the write off had not been granted by the RBI till then. It is to be borne in mind that section 18(2) itself contemplates that a person may seek permission of the RBI to do or refrain from doing anything or take or refrain from taking any action which has the specified effect. If such permission is sought and given by the RBI, there would be no contravention of section 18(2) even if export proceeds are not realised. If such permission is not sought at all, or if sought, the same has been refused, the exporter will be guilty of contravention of section 18(2) if he fails to prove that he had taken all the effective steps as in the circumstances of the case would have been FPA-FE-585-588-MUM-2000 Page 25 of 35 reasonably taken by a prudent man dealing in export business. IN view thereof since an application for such permission was pending before eh RBI, particularly when the RBI itself advised the appellant to seek such permission, it was pre-mature to say that the appellant has refrained from doing anything or refrained from taking any action without the permission of RBI unless and until such permission is refused. Unless and until a decision is taken on the application, even the RBI cannot say that it has refused the permission. Therefore, in the legislative scheme of section 18 (2) it is not possible for any authority to assume that non- realisation is without the permission of the RBI so long as the application for write off of the export proceeds remains under consideration of the RBI. This Board has taken a similar view in its order in [Appeal No. 440 of 1991 dated 17- 2-1994] Gazebo Industries (P.) Ltd. v. Directorate of Enforcement, [Appeal no. 454 of 1990 dated 7-2-1994] and Consmique Exports Ltd v. Directorate of Enforcement [Appeal no.
440 of 1991 dated 17-2-1994]. The significance of an application pending consideration of the RBI is amply demonstrated in this case as the RBI has since granted the write off to the appellant by treating the non-realisation of outstanding export proceeds as legally in order. It would appear that the learned Additional Director has gone by the allegation made in the letter of Syndicate Bank of 8-12-1981 and the RBIs letter, a portion of which has been extracted in the impugned order. If an allegation is made and explanation sought, it will be a traversity of justice to rely on the allegation without considering the explanation FPA-FE-585-588-MUM-2000 Page 26 of 35 given in reply to the allegation. In any case, these letters were not at all relevant as subsequent to these letters, the RBI itself had granted extension of time. b. Cosmique Exports Ltd. Vs. Director of Enforcement 1994 (96) Taxman 299. It is to be noted that in order to bring home the charge of contravention of section 18(2), it is necessary for the department to initially prove that the prescribed period for realisation of the export proceeds has expired, that the export proceeds are still outstanding and that there is no approval or permission of the RBI for non- realisation of the export proceeds. The Special Director failed to take into consideration without any cogent reasons the evidence of writing off of 49 GRIs and the receipt of export proceeds in respect of two GRIs. The initiation of adjudication proceedings was not at all called for in respect of the 49 GRIs where the RBI had permitted writing off and it was premature to initiate proceedings in respect of the remaining GRIs where permission for writing off was already under consideration of the RBI. The Special Director had failed to appreciate that if the permission of the RBI under section 18(2) has been sought, it was impossible to determine whether any contravention of section 18(2) has been committed, unless and until the RBI gives its decision, because the charge of contravention will depend on the RBIs refusal to give its permission. The Special Director erred in ignoring, the fact that the export proceeds in respect of two GRIs had already been realised. Therefore, the impugned order, so far as it FPA-FE-585-588-MUM-2000 Page 27 of 35 related to contravention mentioned under SCN No. 1, was set aside. In regard to the charges contained in SCN No. II. The position was similar to that of the outstanding 21 GRIs under SCN No. I. Since the applications for writing off of the export proceeds were under consideration of the RBI when the adjudication proceedings were initiated and were still under consideration, the adjudication proceedings had to be quashed as premature. Since the charge of contravention in respect of the first and third appellants could not be sustained, the provisions of section 68(1) would not be attracted and the question of any contravention on the part of the second the fourth appellant did not arise. Therefore, all the appeals were allowed and the impugned order was set- aside. c. Gazebo Industries Pvt. Ltd. Vs. Director of Enforcement - 1995 (79) Taxman 100(Para 13 to 17)
13. The appellants were charged with the contravention of section18(2), read with section 18(3). Sub section (3) of section18 contain a statutory presumption of contravention of sub-section (2), though rebuttable on proof of reasonable steps having been taken, if (i) the prescribed period has expired, and (ii) the payment for goods exported has not been made as aforesaid, i.e., as provided in sub-section (2). The period for payment has been prescribed in rule 8 of the Foreign Exchange Regulation Rules, 1974 which speaks of a period of 6 months or the period as extended by the RBI. The extension of period is granted by the RBI on an application made FPA-FE-585-588-MUM-2000 Page 28 of 35 in that regard for which the RBI has prescribed a proforma and which is normally required it to be routed through the concerned bank. The RBI has power to entertain an application even after the expiry of 6 months or after expiry of the period previously extended. It would, therefore, follow that unless and until the RBI grants or rejects the application for extension of time is not possible to determine whether the prescribed period has expired or not. In view thereof there cannot be a presumption, and a fortiorarian allegation, of contravention of section 18(2) during the pendency of an application for extension of time. It is only when the RBI, and if it decides to do so, rejects the application that a presumption of delayed payment can be made and the person can be proceeded against in adjudication proceedings, where he will be given an opportunity to rebut the presumption by producing evidence, if any, to prove that he has taken the steps as may be reasonably called for in the facts and circumstances of the case.
14. It would further be seen that a contravention of section 18(2) occurs when a person, except with the permission of the RBI, does or refrains from doing or takes or refrains from taking any action which causes or results in delayed payment or non-payment of export proceeds. In view thereof if the Reserve Bank grants its approval for any delayed payment, or for writing off of the outstanding export proceeds-full or part-or otherwise treats the realisation, part realisation or non-realisation of export proceeds as in order there will be no contravention of section 18(2). What is material is the decision of the RBI whether it conveyed as approval, permission, exemption, direction or simply as advice. FPA-FE-585-588-MUM-2000 Page 29 of 35
15. If we consider the facts of present appeals in the light of the provisions of section 18(2) and (3) as discussed above, it will be seen that appellant application for extension of time for payment of the export proceeds were under consideration of the RBI. Shri Khanwilkar has, therefore, rightly contended that the initiation of the adjudication proceeding was totally untenable in law. Moreover, in respect of outstanding covered by GRIs at Serial Nos. 4, 5 & 6 of the RBI was considering the applications of the appellant for writing off of those outstanding was pre- mature. In our opinion of the impugned order is, therefore, liable to be set aside as no contravention can be said to have been made out on the facts as accepted in the impugned order itself. It is seen from the record that the RBI has since accorded its approval for writing off of all the export proceeds, the appellants cannot be said to have contravened the provisions of section 18(2).
16. Since there is no contravention on the part of the first appellant, the question of contravention on the part of the remaining appellants, in the capacity of their being the Directors of the first appellant does not arise. The imposition of penalty on the second appellant as proprietor of Gazebo Industries was totally conceived as the assets and liabilities of the proprietory concern were admittedly taken over by Gazebo Industries (P.) Ltd. Moreover, if the proprietory concern was to be penalised, as it was, the question of contravention on the part of Gazebo Industries (P) Ltd. and its Directors should not have arisen.
17. We are also of the view that there is no scope for any doubt, though entertained by Shri Mahajan for the respondent, about the legal effect of the writing off granted by the RBI. As discussed above FPA-FE-585-588-MUM-2000 Page 30 of 35 section 18(2) itself excepts the contravening actions or omissions in respect of which permission has been granted by the RBI. The position should be taken as stands judicially settled by the following observations of the Supreme Court in the case of LIC v. Escorts Ltd. AIR 1986 SC 1370:- The provisions of the Foreign Exchange Regulation Act are so structured and woven as to make it clear that it is for the Reserve Bank of India alone to consider whether the requirements of the provisions of the Foreign Exchange Regulation Act and the various rules, directions and orders issued from time to time have been fulfilled under the scheme of the Act, it is the Reserve Bank of India that is constituted and entrusted with the task of regulating and conserving foreign exchange. If one may use such as expression, it the custodian- general of foreign exchange. The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permission may or may not be granted under section 29(1) of the Act. The Act makes its exclusive privilege and function. On other authority is vested with any power nor may it assume to itself the power to decide the question whether permission may or may not be granted or whether it ought or ought not to have been granted. The question may not be permitted to be raised either directly or collaterally. (p. 1412) These observations, though made while dealing with the permission granted under section 29(1) of the Act, will equally apply to the approval given by the RBI under any of the provisions of the Act. FPA-FE-585-588-MUM-2000 Page 31 of 35 d. Taj Traders Vs. Director of Enforcement- 1995 (80) Taxman
103 (Paras 10 and 11)
10. To put, it in similar language what section 18(2) provides, insofar as relevant for the purposes of these appeals, is that if the full export value of the goods has not been realised within the prescribed period or if the realisation of full export value of the goods has been delayed beyond the prescribed period, it would amount to contravention of section 18(2) unless the exporter proves that he has taken all reasonable steps to realise the outstanding export proceeds. However, there will be no contravention, even if the export proceeds, in full or in part, have not been realised, if the prescribed period of 6 months or the period extended by the Reserve Bank has not expired. Similarly, there will be no contravention of section 18(2) if the Reserve Bank has granted permission to the exporter by writing off the outstanding proceeds and treated the matter as closed or as in order by directing the release of the concerned GR Forms. It is now judicially settled after the Supreme Courts judgment in Life Insurance Corporation of India v. Escorts Ltd. AIR 1986 SC 1370 that the Reserve Bank is empowered to grant an ex post facto permission under section 18(2) or extension of time under the second proviso to rule 8. It would thus be noted that a mere non- realisation of export proceeds or realisation or export proceeds after the expiry of the prescribed period, by itself, would not amount to contravention of section 18(2), unless the Reserve Bank, if approached, has refused to grant the permission contemplated under FPA-FE-585-588-MUM-2000 Page 32 of 35 section 18(2) or has refused to extend the period as contemplated under rule 8 of the Foreign Exchange Regulation Rules, 1974. It would therefore follow that if an application seeking extension of time or for permission for writing off the outstanding export proceeds is pending consideration of the Reserve Bank, the question whether there has been a contravention of the provisions of section 18(2) cannot be determined unless and until the Reserve Bank has refused extension of time or the permission for writing off, as the case may be. If any adjudication proceedings are initiated during the pendency of such applications before the RBI, such proceedings would be pre-mature and without jurisdiction.
11. While on the question of contravention it is also to be noted that the burden is on the Department to substantiate, by proper evidence, the charge of contravention of the provisions of section 18(2). However, as stated earlier, this question will arise only in those cases where no application has been made to the RBI for the purpose stated above or where the RBI has refused the permission contemplated under section 18(2) or the extension of time contemplated under the second proviso to rule 8 of the Foreign Exchange Regulation Rules, 1974. Even where the RBI has refused the permission or the extension of realisation period and thereupon a contravention is presumed, in terms of section 18(3), merely on the fact of non-realisation of full amount of export proceeds, it is open to the exporter to rebut the presumption under section 18(3) by proving that he had taken all reasonable steps to realise the export proceeds and that the realisation remains outstanding in spite of such steps. If the exporter FPA-FE-585-588-MUM-2000 Page 33 of 35 succeeds improving this he cannot be held guilty of contravention of the provisions of section 18(2).75
42. In view of the above case law, which was binding on the Special Director (ED), we are of the considered view no penalty could be imposed in respect of outstanding recovery from Iraq for which extension of time had already been granted and the extended time was not yet over. No penalty could also have been imposed for outstanding amounts from other 5 countries in respect of which waiver application was pending.
43. In the light of above, the appeal filed in the appellant-Hindustan Lever Ltd. is allowed in the light of above said facts.
44. As mentioned a penalty of Rs.25 Lakhs was also imposed in respect of each of the 3 Directors [(i) Mr. D.M. Buckle, (ii) Mr. K.B. Dadisheth (iii) Mr.S.M. Dutta ]. Connected Appeals bearing nos. 586-588 of 2000 are also filed in respect of the penalty imposed on the aforesaid 3 Directors.
45. NO PENALTY COULD BE IMPOSED ON THE DIRECTORS The penalty of Rs. 25 Lakhs each imposed in respect of the 3Directors are also liable to be set aside.
(i) Firstly, the appellants have filed an affidavit in this regard. In para
5 of the said Affidavit, at pg. 4 it is clarified that the 3 Directors were not in-charge of Exports. Mr. Buckle the 3rd Director was not even a Director during the relevant period. (He took charge of the office with effect from 1.1.93 when the exports are within the period 1982 to 1991.) (See para FPA-FE-585-588-MUM-2000 Page 34 of 35 3(i) at pg. 2 of the said affidavit). The details regarding the other two Directors are also set out in the said Affidavit.
(ii) In the Show Cause Notice dated 25.11.1993 only the names of the aforesaid 3 Directors are mentioned. Their names are included only on account they being Directors. No further allegation or statement is made as to how they were in-charge and were responsible to the Company for the conduct of business of the Company in relation to such exports and the recovery of the amounts in relation thereto, as contemplated under Section 68.
46. It is settled law that mere repetition of the language of the Section in the Show Cause Notice is not enough. Unless it is specifically stated as to how the said Directors are responsible and in-charge of, as contemplated in Section 68.
(i) Sunil Bharti Mittal Vs. Central Bureau of Investigation (2015) 4 SCC 609- In para 39, it is held that When the company is the offender, vicarious liabilities of the Director cannot be imputed automatically there has to be a specific act attributed to the Director or any other person allegedly in control and management of the Company, to the effect that such a person was responsible for the act committed by or on behalf of the Company. Reference in para 39 is also made to the decision in the case of KekiHormusjiGharda Vs. Mehervan Rustom Irani [2009] 6 SCC
475 and para 17 thereof is quoted in which it is held that The Managing Director or the Directors of the Company thus cannot be said to have committed an offence only because they are holders of office.
(ii) Saroj Kumar Poddar Vs. State(2007) 3 SCC 693 paras 13 & 14. FPA-FE-585-588-MUM-2000 Page 35 of 35 In para 14 it is held that there is no averment in the complaint petition as to how and in what manner the appellant was responsible for the conduct of the business of the company or otherwise responsible to it in regard to its functioning. The complaint was thereupon set aside.
47. In the light of settled law, the impugned order with regard to penalty imposed to three directors is also set-aside.
48. Under these circumstances, all four appeals are allowed. The impugned order is set-aside.
49. No costs. (Justice Manmohan Singh) Chairman (G.C. Mishra) Member New Delhi, 25thMarch, 2019.
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