Concorde Overseas Pvt. Ltd. vs Appellate Tribunal

Dr. S. Muralidhar, J.—These appeals are directed against the common order dated 13th March 2008 passed by the Appellate Tribunal for Foreign Exchange (''AT'') dismissing the Appeal Nos. 434 of 2005, 435 of 2005, 436 of 2005 and 437 of 2005 filed by the Appellants against the common adjudication order (''AO'') dated 28th February 2005 passed by the Deputy Director (''DD''), Enforcement Directorate (''ED''), imposing a penalty of Rs. 2,00,000 on the company, i.e., Concorde Overseas Pvt. Ltd. (''COPL'') and Rs. 1,00,000 each on the individual Directors for their failure to realise and repatriate the outstanding export proceeds in contravention of Section 18(2) and Section 18(3) of Foreign Exchange Regulations Act, 1973 (''FERA''). In the Memorandum dated 30th April 1999 issued by the ED to the Appellants, it was stated that between the years 1991 and 1993, there were six transactions of export undertaken by COPL in association with M.M.T.C. Ltd. (''MMTC'') to the total extent of US Dollar (''USD'') 1,95,519.61, the proceeds of which had not been realised. It was noted that despite the COPL applying to the Reserve Bank of India (''RBI'') to seek time for realisation of the export proceeds, time was not extended by RBI. It was accordingly stated that failure by COPL to realise the export proceeds was in contravention of Section 18(2) FERA. The COPL and its directors, i.e., the other Appellants were asked to show cause why the proceedings under Section 51 FERA should not be initiated against them.

COPL, in response to the said Memorandum, pointed out that it was a 100% export oriented unit (''EOU'') carrying out its operations in the special export oriented complex in Jhandewalan for manufacturing of gold jewellery. It was contended that there was a total of 71 consignments of exports sent to different overseas buyers during the period 1991 to 1993 and of those 71 consignments, the sale proceeds of 5 consignments had not been received by MMTC. It was contended that it was MMTC which was the exporter and had handled the export documents. The role of COPL was to manufacture the gold jewellery and hand it over to MMTC for export. MMTC also drew the bills of exchange (''BoE''). It was stated that the export documents were made in the name of MMTC and the proceeds were realised by MMTC. After deducting MMTC''s cost of gold, interest and service charges @ 10%, balance was to be paid to COPL as labour charges. MMTC used to give a disclaimer certificate in favour of COPL passing on all the export benefits under the Income Tax Act, 1961.

MMTC, which was also sent the Memorandum dated 30th April 1999, submitted a reply pointing out that MMTC was only a designated agency nominated by the Ministry of Commerce for supply of duty free gold to authorised EOUs like COPL for the purposes of manufacture and export of gold jewellery. COPL had been allotted a space in the Jhandewalan Jewellery Complex, which was leased to MMTC by the Delhi Administration. MMTC was, therefore, just a designated agency for the supply of gold and had no other role in the actual exports of jewellery which was done by COPL. Reference was made to an agreement dated 25th April 1991 executed between COPL and MMTC which only envisaged the method by which the export had to be done. The said agreement made it clear that in the event the EOU fails to realise export proceeds from the foreign buyer, resulting in a consequent inability by MMTC to realise its financial assistance, the responsibility essentially would be that of the EOU. It was pointed out that COPL had signed the GR form as an exporter and was, therefore, fully liable for the export proceeds and the consequences of the failure to realise it in terms of Section 18 FERA. MMTC explained that the only purpose of including the name of MMTC in the export documents was to ensure the recovery of the financial assistance given to COPL, which constituted 90% of the value of the export consignment.

MMTC itself confirmed that in respect of one invoice No. 22 for a sum of USD 15,000, the export proceeds had been received by MMTC on 1st May 1997 and the outstanding against the said invoice was USD 610.40.

In the AO dated 28th February 2005, the DD, ED negatived the contention of the Appellant, COPL that it was not the actual exporter. It was concluded that by drawing the BoE in their favour, MMTC had only ensured that the proceeds of exports were to be received directly in MMTC''s account for adjustment against the loan advanced to COPL in accordance with export agreement dated 25th April 1991 and the consequential hypothecation agreement dated 5th August 1991. On the issue of the efforts made by COPL to realise the export'' proceeds, it was noticed that in relation to the shipments made to two of the foreign buyers, i.e.'', M/s. New Delhi Jewels Inc., USA and Anglia Jewellers and Goldsmith Ltd. U.K., the proceeds were realised in full gradually. In cases of two of the GR forms, i.e. for USD 49,708.58 and USD 24,610.40 it was observed that "the proceeds have been substantially realised." It was further observed: "All this shows clearly that the notices had been taking sincere efforts to realise the proceeds, though such efforts cannot be termed as complete, given the circumstances of the case and the amounts involved."

In the above circumstances, it was held in the AO that in respect of the export proceeds to the extent of USD 1,80,519.61, there had been a contravention of Section 18(2) read with Section 18(3) FERA. The AO also negatived the plea of the Appellants that it was Mrs. Meena Wadhwa, the manager of COPL, who was in fact in charge of the day-to-day affairs of the company and, therefore, the liability cannot be fastened on to the other directors. Apart from the signature of Mrs. Wadhwa on a few documents, there was nothing to show that she was personally responsible for the non-realisation of the amounts in question.

Accordingly, the DD, ED through the AO proceeded to levy the penalties as noticed earlier.

The AT, while dismissing the appeals by the impugned order dated 13th March 2008, affirmed the AO by holding that it was COPL which was the real exporter and not MMTC. It was further held that the objection as to the non-production or the original documents for inspection was not taken at the earliest point in time and, therefore, could not be entertained at the stage of appeal. It was also held that Section 18(2) FERA would get attracted when the contravention is by ''any person'' and this encompasses not only the exporters but also the supporting manufacturer "who might have performed any material act in making the exports of the goods." The AT rejected the plea of the Appellants that they had made sincere efforts to recover the export proceeds. As regards the liability of the individual directors, it was held that no contrary material had been brought on record to show that it was Mrs. Meena Wadhwa who was responsible for the non-realization of the export proceeds.

This Court has heard the submissions of Mr. Azhar Qayum Butt, learned counsel for Appellants and Ms. Rajdipa Behura, learned counsel for the ED.

The Court is unable to find any error committed by the AT or the DD that the de facto exporter, for all practical purposes in the present case, is COPL. This flows from the pleading of Section 18(2) FERA, and in the context of the arrangement between MMTC and COPL which has been explained in the statement of Mr. Vijay Pal Singh, DGM, MMTC made under Section 40. FERA before the ED. It does appear that under the Scheme, MMTC was to provide gold which was then to be used for making the jewellery for export. It was COPL which was the actual exporter. The liability to real is the export proceeds was indeed that of COPL.

The Court is also not able to find any error having been committed either by the AT or the DD regarding the liability of the individual directors of COPL. However, the central question in these appeals is regarding the liability of COPL and its directors for failure to realise the export proceeds.

It was pointed out by Ms. Behura by referring to Rule 8 of the Foreign Exchange Regulation Rules, 1974 (''FERA Rules'') that there was a mandatory requirement that the amount representing the full export value should be realised and paid to the authorised dealer either on the due date for payment "or within six months from the date of shipment of the goods whichever is earlier." She further submitted that while the second proviso to Rule 8 envisages the RBI extending the period for realisation, in the present case, the RBI in fact did not extend the period despite COPL having applied to it for that purpose. She submitted that the documents placed on record do not show that COPL made consistent efforts to realise the export proceeds. For instance, for the export of consignment on 15th November 1991, the actual effort was made only in 1993.

On the other hand, it has been pointed out by Mr. Butt that it was on account of efforts made by the Appellants that of the six consignments mentioned in the Memorandum, proceeds in relation to a consignment for a sum of USD 49,708.58 were substantially realised. He also referred to the finding of the DD, ED in the AO that the Appellants had made sincere efforts and in relation to some of the consignments substantial realisation had taken place.

It is seen that a letter was written on 11th November 1993 by the Oriental Bank of Commerce to the RBI pointing out that the exporters "are in continuous touch with their buyers and have been promised by them for remittance by March 1994. We recommend that subject may be allowed extension of time limit." Copies of the letters written by COPL to the RBI on 5th November 1993 and 14th December 1993 have been placed on record. There is a letter dated 6th July 1993, written by one of the buyers, Anglia Jewellers & Goldsmiths Ltd. to COPL stating that they had suffered a theft during February of that year which had created a cash flow problem. They were making an interim payment of USD 20,000 and would be making the balance payment without delay. There was a fax message sent on 17th May 1993 sent by COPL to the said buyer, reminding it of the overdue amount and requesting for remission of the balance sum. As far as the other buyers are concerned, copies of the letters have been; written by COPL in January, July, October, December 1994, March, August, November 1995 and February, April and September 1996 have been placed on record.

While it is true that in terms of Rule 8 of FERA Rules an exporter is expected to realise the export proceeds within six months from the date of shipment, when an exporter is faced with a defaulting buyer who is outside the country, all that the exporter can do is apply to the RBI seeking extension of time. It is not possible that in all cases an exporter will have the wherewithal to initiate legal proceedings outside India for realisation of export proceeds. The costs of doing that would be prohibitive from the point of view of a small exporter. The scheme of MMTC was to encourage the smaller exporters, who, on their own strength, would have normally been unable to procure orders from abroad for export of jewellery. It is difficult, therefore, to equate the exporters working as 100% EOU in the premises given on lease to the MMTC with other exporters who may be operating on a larger scale and who may have wherewithal to take more effective steps for realisation of export proceeds. The key issue here is about the sincerity of the efforts made by COPL to realise the proceeds. What Section 18(2) FERA expects is that there should be no deliberate attempt to refrain from realising the export proceeds.

The AO of DD itself notices that the Appellants made sincere efforts to realise at least part of the outstanding amount. In the circumstances, it is not possible to concur with the conclusion reached by the DD in the AO that there has been a contravention by the Appellants of Section 18(2) and Section 18(3) FERA. The AT also does not appear to have examined the documents placed on record by the Appellants to show the efforts made by them to realise the export proceeds. Consequently, this Court sets aside the impugned order of the AT dated 13th March 2008 and the order of the DD, ED dated 25th February 2008 and allows these appeals. The amounts deposited by the Appellants pursuant to the AO and the impugned order of the AT shall be refunded to them within a period of four weeks in accordance with law.