Minar Exports vs Enforcement Committee

V.C. Daga, J.—The restricted challenges set up to the orders-in-original in Writ Petition Nos. 952/2006 and 2259/2007 are dated 13th June, 2005; whereas in other petitions they are dated 20th June, 2005. The orders in appeal in all these petitions are dated 16th November, 2005. The facts involved in these petitions are more or less common and issues involved are identical. Hence all these petitions were heard together and are being disposed of by this common judgment. For the sake of clarity, facts are borrowed from the representative petition No. 952 of 2006 filed by M/s. Minar Exports (hereinafter referred to as the "petitioners" for short which shall mean and include all the petitioners herein).

The petition by M/s. Minar Exports filed under Article 226 of the Constitution of India, is directed against the order-in-appeal dated 16th November, 2005 (Exh.H) passed by the respondent No. 2- Enforcement Appellate Committee and the order in original dated 13th June, 2005 (Exh.F) passed by the respondent No. 1-Enforcement Committee to the extent it directs payment of compensation, penalties with further direction to deposit amounts mentioned therein more particularly as set out in para X(a) to (c) extracted in para 4 appearing hereinafter both these orders are passed by the authorities constituted under the the Yarn, Fabrics and Made-ups Export Entitlement (Quota) Policy for 2000-2004 framed by the Government of India, Ministry of Textiles, New Delhi ("Quota Policy, 2000-04" for short).

Factual Backdrop:

The factual backdrop leading to these petitions lie in committing alleged breach of Quota Policy, 2000-04 by the petitioners arising in the following factual circumstances. The WTO agreement on Textiles and Clothing (ATC) laid down annual quantitative restrictions on the quota for certain textile products categories from India to the United States, member nations of the European Union and Canada. Accordingly, Ministry of Textile, Government of India vide its notification No. 1/129/99 Export-1 dated 12th November, 1999 announced the Quota Policy 2000-04.

Under the said policy the Executive Director of respondent No. 3 (Texprocil) was appointed as the Quota Administrating Authority (QAA). The Texprocil and QAA issued visas which mentioned quantity and type of textile which exporter was entitled to export. At the time of clearance of exports at the Indian ports, quota endorsements containing details such as the name of the exporter, category/group details (type of textile), FOB value and the validity of the period of shipment were to be stamped by the Texprocil on the copies of the pro-forma invoices furnished by the exporters. Similarly, the quantity and type of textile along with the name of the exporter was to be noted at the relevant port/destination of the exported textiles. These were noted to ensure that the exporting country abides by the quantitative restrains as per the bilateral agreements entered into between the countries. Once quota levels are reached, no further export was allowed. Due to the quota restrictions the quotas are distributed among exporters in such a manner so as to maximise foreign exchange earnings of the country. Those exporters, who had obtained quotas but failed to export were required to compensate the exchequer for loss of foreign exchange, accordingly, Texprocil tallied from time to time the statements received from the destination countries to ensure that the allotted quotas had been exported. The exporters were also required to furnish to Texprocil proof of shipment and realisation of export proceeds. Accordingly, the aforesaid procedure was being followed for several years. The Texprocil was used to receive what was known in the trade as "Namesake Statements" from the US authorities containing details of shipments cleared by them.

The petitioners had been exporting their goods under the Quota Policy 2000-04 and had been allotted quotas in respect of Group-I and Group-II textiles. As quotas for Group-II (which covered items like bed linen which were in grater demand) were difficult to obtain and were highly sought after by the exporters, in the year 2004. According to the respondents, the petitioners by forging various export documents, used the quota allotted to them in Group-I to actually export goods falling under Group-II in the open market to the other exporters from time to time. As a result, the petitioners, according to the respondents, made huge monitory gains for themselves but were not able to make full use of their own quota under Group-I which was allotted to them and thereby deprived the country of the foreign exchange that the country would have earned on the export of quotas allotted under Group-I. Moreover, according to the respondents, the actions of the petitioners in forging Group-I quotas to export Group-II quotas resulted in the complete quota for total exports from India under Group-II being used up well before the year end resulting in an embargo being imposed by the authorities. With the result, all subsequent exports of Group-II textiles to the USA were prevented. The other law abiding exporters, who had been allotted quotas under Group-II, were thus could not export and suffered great loss as they were unable to fulfil their export contracts. In this game, according to the respondents, not only the country lost its foreign exchange earnings as aforesaid but the country was brought into disrepute.

According to the respondents, the aforesaid factual matrix came to light while reconciling the details of exports and imports in the Namesake Statements for the period up to October, 2004 on verifying the details of shipments permitted by Texprocil for the said period. It was noticed that there were wide variations between the quantities which were certified by Texprocil and those cleared at the US end. These discrepancies related to the allotment of quotas made to the petitioners.

The detailed enquiries with the US authorities revealed that the variations were not typographical or clerical errors, but the same were deliberate attempts by the petitioners to circumvent and/or forge the export documents by obtaining quotas under one category of products/items viz. Group-I and actually clearing items falling in another category, USA Group-II (Made-ups).

In view of the aforesaid lapses noticed by the respondents, the petitioners, vide order dated 23rd November, 2004, were temporarily debarred from making any further exports pending detailed investigations in the matter. Show cause notices were issued to the petitioners wherein the full details were provided and they were called upon to submit their explanation and/or documentary evidence in support of their stand. The petitioners were asked to appear at the personal hearing. The petitioners in reply to the show cause notices maintained that they had done no wrong and reserved their right to prove the same.

The petitioners also denied allegations of fraud and forgery. In the course of investigation and hearing, a letter dated 20th December, 2004 was received from the Bombay Mercantile Bank alleging serious nature of fraud perpetuated by the petitioners alleging that number of endorsements were forged and the bank release certificates (BRCs) were never issued by the Bank.

The petitioners, representative, according to the respondents, during the course of hearing admitted that there were possibilities that the goods of other exporters had been cleared under the concerned documents which were produced by the respondents during the course of enquiry. The admissions, according to the respondents, facts leading to variation in the product, category, numbers and existence thereof were also admitted by the petitioners and that no reasonable explanation for these serious discrepancies was offered by them.

The respondent No. 1 not satisfied with the stand taken by the petitioners held that the petitioners had not only forged the visas but also submitted forged Entry Summary Sheets. This was done to support their contention that the items exported were under Group-I. That proof of shipment in the form of bank attested invoices and BRCs were also found to be forged attracting penal provisions.

On the basis of the above findings, the respondent No. 1 passed an order dated 13th June, 2005 whereunder the petitioners were, inter alia, debarred from making any export for the period of three years from 23rd November, 2004 to 22nd November, 2007 and petitioners were called upon to pay compensation, penalty and make good loss specified in the said order.

The petitioners, not satisfied with the order-in-original preferred appeals and stay applications before the appellate authority - the respondent No. 2. The appeals were heard and decided vide order dated 16th November, 2005; wherein the orders-in-original were upheld.

Being aggrieved by the aforesaid orders, the petitioners have invoked writ jurisdiction of this Court raising technical contention that the impugned orders to the extent they travel beyond the show cause notices and the scope of Quota Policy 2000-04 are bad, illegal and violative of principles of natural justice. Needless to mention that the findings relating to the acts and omissions constituting foundation for debarment are not challenged in any of the petitions. No submissions on that count were advanced.

At this juncture, it is relevant to place on record that a fresh show cause notices dated 13th January, 2010 and 20th January, 2010 have been issued by the Joint Director General of Foreign Trade (Enforcement) during the pendency of these petitions in Writ Petition No. 952 of 2006 and Writ Petition No. 2259 of 2007 respectively, which are yet to be adjudicated upon.

Rival submission:

Mr. Venkateswaran, learned senior counsel appearing for the petitioners submits that the impugned orders to the extent they impose a penalty, compensation and make recommendations to the Director General of Foreign Trade (DGFT), inter alia, to cancel the Import Export Code (IEC) Number granted to the petitioners, is clearly ultra vires the powers conferred upon respondent No. 1, under the Quota Policy.

Mr. Venkateswaran further urged that the Quota Policy in para-17(v) only envisaged debarment from obtaining entitlements under the policy and participating in the Export Entitlement Distribution for a specified period and made no provision for the imposition of financial penalty, let alone the imposition/demand for compensation and the illegal and arbitrary recommendations of the nature made therein. According to him, as per the WTO agreement on Textiles and Clothing (ATC), the textile quota regime has been completely abolished with effect from 1st January, 2005. India has been implementing the provisions of the WTO agreement on clothing and textiles by means of the quota policy notified by the notification dated 12th November, 1999, the substantive provisions of which policy and notification was co-terminus with the end of the quota regime. He, thus, submits that the impugned orders were issued under the provisions of the Quota Policy, the substantive provisions of which have ceased to exist.

Mr. Venkateswaran would further submit that the penalty envisaged under the Quota Policy is restricted only to debarring the guilty exporter from availing of benefits and participating in the export entitlement schemes specified under the said policy as such any penalty imposed under the Quota Policy can at the most relate to the period during which the Quota Policy operated or was in existence and not beyond the period of the quota regime. That the impugned orders in so far as they debar the petitioners from exporting textile products for three years were beyond the period of quota regime constitutes an unjust restriction on the petitioners'' right to trade guaranteed under Article 19(1)(g) and right, to livelihood guaranteed under Article 21 of the Constitution as such bad and ought to be set aside.

Mr. Venkateswaran sought to canvass that the Quota Policy was a self-contained and self-structured policy, para-17 of which dealt with quota malpractices by exporters. The types of malpractices, the authorities to deal with the same, their powers, punishment and the other procedure were well defined in the said Quota Policy. He submits that the respondent No. 2 failed and neglected to inform the petitioners the order passed in appeal for an inordinately long period of time which has caused irreparable harm to the goodwill, reputation and financial interests of the petitioners. He urged that the authorities ought to have issued show cause notice and should have given opportunity of hearing before refusing to debit the DEPB licences/credits earned by the petitioners against imports. That the order-in-original was based on unsubstantiated allegations and assumptions and was passed in absence of concrete evidence. According to him the only way the charges leveled against the petitioners could have been ascertained by resorting to the verification of the Entries Summary Sheets issued by the US Customs. Lastly, he submits that the impugned orders preventing exports of the petitioners'' goods are arbitrary, unreasonable, unjustified and violative of Articles 14, 19 and 21 of the Constitution of India and thus liable to be quashed and set aside.

Per Contra:

Mr. Khambatta, learned Additional Solicitor General while opposing petitions urged that first and foremost the amount set out in the order although labelled as ''compensation'', was, in fact, in the nature of ''penalty'' for the unlawful gain procured by the petitioners and the loss of foreign exchange caused to the State exchequer. That the power to impose penalty rests squarely with the respondent No. 1 and was rightly imposed on the petitioners. He would further submit that as a statute or rules framed thereunder, the Quota Policy conferred a substantive powers upon an authority, all incidental and ancillary powers necessary for giving effect to the said substantive powers must be inferred and are deemed to implicitly be vested in the concerned authority. According to him, the respondent No. 1 was authorized to deal with quota malpractices and violations of the Quota Policy and had power to take all necessary steps to ensure that the non-compliant parties like petitioners herein were suitably punished for the gross malpractice and fraud committed by them and to pass necessary directions to ensure that the State exchequer was suitably compensated for the loss caused to it on account of the violation committed by the petitioners.

Mr. Khambatta submits that settled legal position clearly provides that the concerned adjudicating authority is deemed to have power to do all such acts and/or employ all such means as are necessary to give effect to the statute, including exercising substantive powers. He, thus, submits that none of the notifications relied upon by the learned Counsel for the petitioners state that the officers mentioned therein were the only persons, who could function as authorities under the Act.

Mr. Khambatta, in support of the impugned orders borrowed support from the notification dated 12th November, 1999 which was valid till 31st December, 2004 issued by the Government of India, Ministry of Textile under the EXIM Policy issued u/s 5 of the Foreign Trade (Development & Regulation) Act, 1999 ["Foreign Trade (D & R) Act" for short]. He placed reliance on Clause 17 of the said notification which, inter alia; provided that the respondent No. 1 - Enforcement Committee had the authority to deal with all cases involving fraudulent activities, misrepresentation of facts, falsification of documents, forgery etc. According to him, the expression "deal with" is of the widest amplitude and must be understood to vest power in the respondent No. 1 to impose any punishment or pass any order as may be necessary for giving effect to the Quota Policy. In support of his submission he placed reliance on the judgments of the Apex Court in the case of Delhi Administration Vs. Ram Singh, and another in the case of Sachidananda Benerji, Assistant Collector of Customs Vs. Sitaram Agarwala and Another, followed by another in the case of Directorate of Enforcement Vs. Deepak Mahajan and another, .

Mr. Khambatta further submits that to take narrow view that Clause-17 only provides the power to debar a party committing an offence is erroneous and would defeat the object and purpose of the notification and of the Foreign Trade (D & R) Act. In his submission, if the narrow view is taken that the party has committed a relatively minor infraction of the Quota Policy, the only remedy available to the respondent No. 1 would be the harsh punishment of debarring the said party. He also tried to interpret other sub-clauses of Clause-17 and went on to urge that no statute can be interpreted in such a way so as to render a part of it otiose. He placed reliance on the judgment of the Apex Court in the case of A.R. Antulay Vs. Ramdas Sriniwas Nayak and Another, ; wherein the Apex Court was pleased to hold as under:

...nor does any canon of construction permit the court to read the section in such manner as to render it to some extent otiose.

Mr. Khambatta further submits that the well established principle of law laid down by the Supreme Court on several occasions that, where a statute or rules framed thereunder (as in the case of the instant Quota Policy) confers a substantive power upon a judicial authority, all the incidental and ancillary powers necessary for giving effect to the said substantive power must be inferred and treated to be implicitly vested in the judicial authority. In support of his submission he placed reliance on the judgments of the Apex Court (i) Income Tax Officer Vs. M.K. Mohammed Kunhi, ; (ii) Chief Executive Officer and Vice-Chairman, Gujarat Maritime Board Vs. Haji Daud Haji Harun Abu and Others, ; and (iii) Jamal Uddin Ahmad Vs. Abu Saleh Najmuddin and Another, .

Mr. Khambatta further submits that in the instant case the Quota Policy read with provisions of the EXIM Policy, the Foreign Trade (D & R) Act, 1992 and the notification forming part of the present proceedings, makes it abundantly clear that there existed a substantive power to enforce compliance with quota limits and that respondent No. 1 was authorized to take all such measures as were necessary to punish, penalise for breach and secure compliance with the provisions thereof. Being so authorized to deal with quota malpractices and violations of the Quota Policy, it is logical to infer that respondent No. 1 must be deemed to have power/authority to take all necessary steps to ensure that the non-compliant party, being the petitioners herein, are suitably punished for the gross malpractice and fraud committed by him and to pass necessary directions to levy penalties etc.

Mr. Khambatta, without prejudice to the above submission and in the alternative, went on to submit that notification dated 12th November, 1999 was valid till 31st December, 2004. However, Ministry of Textile vide notification dated 9th November, 2004 continued the operation of certain provisions of the Quota Policy for further period. Thus, though the notification initially was up to 31st December, 2004, it was further extended to 31st December, 2007 and from time to time it has been extended and is still holding the field. In this view of the matter, Mr. Khambatta submitted that the notification dated 12th November, 1999 itself conferred power and authority on respondent No. 1 to take all necessary steps for enforcing the Quota Policy. He further submits that power to impose such a penalty and/or to take any such penal measures is also expressly provided in the notification dated 9th November, 2004. He placed reliance on Clause-1 of said notification by which earlier notification dated 12th November, 1999 was not only continued permitting authorities to deal with cases of violation of the prevailing Quota Policy but also given additional power to impose penalty.

Mr. Khambatta while expanding the scope of his submission, strongly placed reliance on para-2 of the said notification, specifically, providing for imposition of penalty as if the said notification had been in force from inception. Para-2 thereof reads as under:

(2) Apart from the above, any such proceeding or remedy may be instituted, continued or enforced and any such penalty, confiscation or punishment imposed may be imposed made as if the above Notifications had been in force.

(Emphasis supplied)

Mr. Khambatta submits that the aforesaid notification dated 9th November, 2004 is a subordinate legislation issued by the Central Government in exercise of the powers expressly conferred in the Central Government u/s 3 of the Foreign Trade (D & R) Act. He, thus, urged that it being a policy decision the court ought not to interfere with bona fide policy decision made by the Central Government. He further submits that merely because the act constituting the offence occurred prior to the issuance of the notification dated 9th November, 2004, the same in no manner implies that the imposition of a penalty under the said notification constitutes giving retrospective operation to the provisions of the said notification. According to him, it is not retrospective but it gives powers to punish, if punishment is to be imposed during the subsistence of the notification. In support of his submission he relied upon judgment of the Supreme Court in Rafiquennessa Vs. Lal Bahadur Chetri (Dead) through his Representatives and Others, as also judgment of this Court in Bharat Purohit Mithaiwala Vs. Union of India (UOI) and Divisional Engineer (Estate), Western Rly., .

Mr. Khambatta further submits that under the Quota Policy prevailing at the relevant time, all the exporters including the petitioners herein were required to submit to the Quota Administering Authority Earnest Money deposit/Bank Guarantees as provided under Clause-11 of the Quota Policy, as and by way of security for ensuring that the exporters complied with the terms and conditions of the Quota Policy and properly utilised the quotas allotted to them. As such, the exporters were required to produce and submit to the Quota Administrating Authority, documents like BRCs as and by way of proof of exports made and foreign exchange recovered by virtue thereof. Upon submission of the said BRCs, the respondent No. 3 was to release the bank guarantees which had been furnished by the concerned exporters. According to him, the petitioners have obtained quotas for export of goods under Group-I and Group-II, by submitting Earnest Money Deposit/Bank Guarantees as per the Quota Policy. However, the petitioners had forged various documents and thereby exported Group-II goods under the quota allotted to them for Group-I goods. This was clearly done to circumvent the difficulty in obtaining further Group-I quotas, which were in high demand at the relevant time and were hard to come by. Upon completion of the exports, the petitioners submitted 55 BRCs to respondent No. 3 and, in turn, the respondent No. 3 bona fidely relying upon the same released bank guarantees furnished by the petitioners. These documents and BRCs were found to be forged. It was subsequently discovered that these documents were forged by the petitioners and relying upon such documents alleged to have been issued by the concerned Banks to respondent No. 3, the bank guarantees were discharged.

Mr. Khambatta further submits that the aforesaid fraud was not known to the respondent No. 3 at the relevant time, and hence respondent No. 3 was defrauded into releasing the said bank guarantees as per the guidelines for the Export Entitlement Policy 2000-2004. He, thus, submits that bank guarantees which were fraudulently induced to be released were in the sum of Rs. 3,81,52,767/- in the case of Minar Exports alone. He further submits that use of the word "compensation" cannot alter the nature of the levy which is in the nature of a penalty since the amount has to be paid to the public exchequer and not to the genuine quota holders, who, actually suffered a loss by reason of the petitioners fraud.

Mr. Khambatta having made his submissions on the aforesaid counts switched on to the provisions of the Foreign Trade (D & R) Act and relying upon Sections 3, 5, 7, 8, 11, 13 and 15 thereof went on to urge that upon conjoint reading of the said provisions it is evident that if a person violates any of the provisions of the Act and/or any rules and orders made thereunder, then such person is liable for punishment by way of imposition of a penalty. The said penalty may be imposed by the Director General or by such officer as the Central Government may by notification authorize in that behalf. According to him, the expression "officer" could logically include a Committee of officers such as respondent No. 1.

While summarising, Mr. Khambatta reiterated that notification dated 12th November, 1999 confers an express power on respondent No. 1 to deal with any offences/violations of the Quota Policy, and to take necessary steps for punishing the said offenders and such a power is implicitly vested in respondent No. 1 . In the alternative, he submits that at any rate the second notification dated 9th November, 2004 expressly confers such powers to impose penalty via para-2 thereof. He, thus, submits that the respondent No. 1 had necessary power and authority to award compensation, penalty and the punishments set out in the order dated 13th June, 2005. The said decisions having been taken after carrying out a detailed review of the facts and law applicable to the matter, if need to be upheld.

After having heard the parties at length, on being asked by this Court, all the petitioners barring M/s. Minar Exports (petitioner in Writ Petition No. 952/2006) have produced bank guarantees, which they had furnished by way of bond in favour of the Cotton Textile Export Promotion Council. Clause-7(iii) thereof reads as under:

AND WHEREAS accordingly the obligors are executing this bond in the sum as mentioned therein for the purpose and on the terms and conditions hereinafter mentioned.

i. That the Obligors shall obtain a valid stay from the 1st Appellate Committee within 45 days of dispatch of the TEXPROCIL Forfeiture Order.

ii. That the obligor(s) and/or their legal representative/successors and assigns agree to ensure that the compensation shall become payable to Texprocil on Order as and when issued by 1st Appellate Committee.

iii. AND NOW IT IS HEREBY FURTHER AGREED, DECLARED AND CONVENATED by the Surety in favour of Texprocil that if the Obligor shall commit a breach in the observance and performance of the terms and conditions set out above including for payment of Texprocil damages, compensation or performance guarantee amount or shall make any default in payment of any monies due and payable under the said circulars and/or demand allotment letters and/or a statement by Texprocil that the obligor has committed such breach or has committed such default shall be binding on the parties hereto, and the surety shall forthwith on demand pay without demur and without questioning or challenging the sum or sums demanded to Texprocil.

iv. It is further agreed that though between the obligor and the surety the relationship is that of a Principal Debtor and Guarantor the relationship between the surety and Texproci here-under shall be that of Principal Debtor and Creditor specifically in respect of obligations of the surety hereunder and the payment to be made by the surety hereunder and Texprocil shall be entitled to proceed against the surety accordingly as Principal Debtor in all respects.

Based on the aforesaid text of the bank guarantee, Mr. Khambatta urged that so far as compensation directed in the impugned orders are concerned, the same can be justified on the basis of the terms of the bank guarantee. In addition to this submission he also urged that the bank guarantee was in the nature of EMD amount as such the order against the petitioners can very well be justified on the terms and conditions of the bank guarantee notwithstanding the fact that the impugned orders imposing liability by way of compensation/penalty exists more than the amount of bank guarantee. In his submission, balance amount can always be recovered by way of arrears of land revenue.

Mr. Venkateswaran, learned senior counsel appearing for the petitioners, in rejoinder, submits that the notification referred to as dated 9th November, 2004, under para-II(vi)(2), does not entitle any punishment to be imposed, for, it simply says: "any such proceeding or remedy may be instituted, continued or enforced and any such penalty, confiscation or punishment imposed or may be imposed or made as if the above Notification as boon in force." According to him, this is the only continuing and existing notification. It does not entitle the respondents to impose these punishments not contemplated in the Quota Policy 2000-2004.

Rejoinder:

In reply, to the submissions made by the Revenue based on Foreign Trade (D & R) Act, Mr. Venkateswaran submits that u/s 13 thereof any penalty may be imposed only by the Director General or, subject to such limit as may be specified by such other officer as the Central Government may, by notification in the Official Gazette, authorize in this behalf. According to him, the only notification dated 20th January, 1999 is authorizing any authority to adjudicate and impose none of the said authorities has imposed punishment on any of the petitioners. He, thus, submits that the reliance placed by the Revenue on the provision of Foreign Trade (D & R) Act is misplaced. He further submits that the bank guarantees on which reliance is being placed have already been discharged. The said bank guarantees are not in force as on date as such reliance placed thereon is also misplaced.

At this juncture, it is relevant to note that in Writ Petition No. 952/2006 filed at the instance of M/s. Minar Exports and Anr. no proforma of the bank guarantee is produced by either of the parties to the petition. However, the petitioners therein have filed an affidavit stating therein that the wordings of bank guarantee furnished on behalf of M/s. Minar Exports to the respondent No. 2 by way of EMD pursuant to the allocation of quota were similar to the wordings of the bank guarantees furnished by M/s. Minaxi Weaving Mills Pvt. Ltd., petitioners in Writ Petition No. 2259/2007, the relevant part of which has already been extracted in para-33 (supra).

Mr. Venkateswaran, while summarising his submissions, submits that the impugned orders, considered from any angle, cannot be sustained in the eye of law and the same are liable to be quashed and set aside.

Consideration:

Having heard rival contentions canvassed by the parties to the petitions and having gone through the content of the petitions along with various affidavits, counter affidavits and exhibits and annexures produced on record, we must observe that none of the contentions which were canvassed by the rival parties before this Court was canvassed either before the Enforcement Committee (authority in original) or in appeal before the Enforcement Appellate Committee (authority in appeal).

If one turns to the specimen show cause notice issued to the petitioners, the relevant para of the notice reads as under:

In case the required satisfactory explanations and/or documentary evidences are not submitted by the party by 27th December 2004, please inform why action against the party should not be initiated in terms of Textile Export Entitlement Policy (2000-2004) as detailed at para 17 of Notification No. 1/129/99 Exports-1 dated 12-11-1999 and subsequent amendments made from time to time by Ministry of Textiles, Government of India and Para 10 of the Guidelines of Textile Export Entitlement (Quota) Policy 2003-2004 issued by the Cotton Textiles Export Promotion Council.

In case the said party fails to respond by 27th December 2004 and/or do not provide explanations and/or documentary evidences to the satisfaction of Quota Administering Authority the matter will be referred to the Enforcement Committee under the Chairmanship of The Textile Commissioner Mumbai to take a final view in the matter. The action will be taken against the said company under the provisions of the Textile Export Entitlement Policy (2000-2004) as detailed at para 17 of Notification No. 1/129/99-Exports-I dated 12-11-1999 and subsequent amendments made from time to time by Ministry of Textiles, Government of India and Para 10 of the Guidelines of Textile Export Entitlement (Quota) Policy 2003-2004 issued by the Cotton Textiles Export Promotion Council.

This Show Cause Notice is issued without prejudice to any further action that may be taken against the party concerned or its Proprietor/Directors/Partners under law and regulation in force.

The reading of the aforesaid clauses would go to show that the power sought to be invoked for taking action against the petitioners was as detailed in para-17 of the notification dated 12th November, 1999, contents of which read as under:

PROCEDURE TO DEAL QUOTA WITH MALPRACTICES BY EXPORTERS

(i) The Committees called the Enforcement Committees are constituted with the following composition:

....

(ii) ....

(iii) The Enforcement Committees will deal with cases involving the use of any one of the following. In connection with obtaining, extending, utilizing or proving the utilization of quotas:

(a) Any fraudulent activity

(b) Any misrepresentation of facts

(c) Any falsification of documents or forgery

(d) Submission of post-dated cheques for extension of entitlements which are dishonoured on presentation to his bank.

(iv) The Enforcement Committees will also deal with cases relating to exporters who are found to have exported or who have completed the formalities to export any item, which contains any dyes, chemicals, pigments or other material whose handling is specifically banned by the competent authority of the Government.

(v) In cases where the Committee finds the exporters guilty of fraud or other irregularities, which are violative of any of the above provisions, after examining his explanation and giving a personal hearing, the exporter may be debarred from obtaining entitlements and participating in the Export Entitlement Distribution Scheme for a specified period.

(vi) In serious cases, the exporter may be temporarily debarred by the Quota Administering Authority before personal hearing, pending the completion of the procedures and finalisation of a decision by the Committee.

....

In the light of the above para-17 of the notification and sub-clauses thereof, if one turns to the decision impugned in the petition, operative part of the impugned order reads as under:

X. Decisions

The evidence available before the Committee establish the grave offense covered under Para 17(ii)a, b and c of Notification No. 1/129/99 Exports I dated 12-11-1999 amended from time to time and Para 11(1)(b) of Notification No. 1/61/2004 Exports I dated 9-11-2004, beyond any doubts. In view of the gravity of the offense, the Committee vested with powers under Para 17 of the Notification No. 1/129/99 Exports I dated 12-11-1999, amended from time to time, by the Government of India, in conjunction with Para 11(1 )(b) of Notification No. 1/61/2004 Exports I dated 9-11-2004 hereby decides to

(a) Confirm the Temporary Debarment Order No. TEXPROCIL/EC/2004/1 dated 23-11-2004 issued by the Executive Director of the Cotton Textiles Export Promotion Council under Para 17(vi) of Notification No. 1/129/99 Exports I dated 12-11-1999, amended from time to time by the Government and debars the exporter from exporting textile products viz. yarns, fabrics, and made-ups to the erstwhile "Quota Countries" viz. Canada, European Union and USA for a period of three years from the date of Temporary Debarment Order i.e. 23-11-2004 to 22-11-2007.

(b) Demand compensation of Rs. 5.68 Crores (Rupees Five crores sixty-eight lakhs only) under Para II(vi)(2) of Notification No. 1/61/2004-Exports-I dated 9-11-2004 being the amount that the exporter would have spent on obtaining quotas from the open market, for a total quantity of 7.57 Million Square Meters Equivalent (Msne) shipped unauthorizedly during the period January-October 2004, arrived at on the basis of an average premium rate of Rs. 7.50 per sq. mtr prevailing in the market for obtaining quotas under Group II Made-up items. Further, the Committee imposes a penalty of Rs. 1.42 Crores (Rupees One crore forty-two lakhs only) arrived at the rate of 25% of the above amount, thus totaling an amount of Rs. 7.10 Crores (Rupees Seven crores ten lakhs only). The above penalty shall be paid by the exporter within 30 days from the issue of this order.

(c) Directs the exporter to deposit an amount of Rs. 3,05,22,214/-(Rupees Three crores five lakhs twenty-two thousand two hundred and fourteen only) in commensurate with the amount of the EMD for which fraudulent Proof of shipments were submitted, along with a penalty amount of Rs. 76,30,553/- (Rupees Seventy-six lakhs thirty thousand five hundred and fifty-three only) arrived at the rate of 25% of the EMD amount, before taking recourse to any appeal procedures, thus totaling to an amount of Rs. 3,81,52,767/- (Rupees Three crores eighty-one lakhs fifty-two thousand seven hundred and sixty-seven only). The above amount shall be paid by the exporter within 30 days from the date of issue of this order.

(d) Recommend to the DGFT to suspend the Import-Export Code (IEC) number of the exporter with immediate effect.

(e) Recommend that Companies in which Mr. U.K. Nambiar, Ms. Susheela Nambiar, Ms. Bindu Nambiar and Mr. Bejoy Nambiar are/or partners/proprietors/Directors should not be issued Import/Export Code (IEC) Number and they are further not permitted to export for a period of three years from 23-11-2004 to 22-11-2007.

(f) Endorse a copy of this order to the DGFT for necessary action.

The appeal against this order lies with the Enforcement Appellate Committee, Ministry of Textiles, Government of India, Udyog Bhavan, New Delhi.

If one turns to Sub-clause (v) to Clause- 17 of the notification containing Quota Policy 2000-2004 and, simultaneously, read the Order-in-original passed by respondent No. 1 and confirmed by respondent No. 2 incorporated in para-X(a) of the impugned order, reproduced hereinabove, debarring the petitioners from exporting textile products for a period of three years can be justified on the basis of text of Sub-clause (v) of Clause-17 of the notification.

So far as demand for compensation and imposition of penalty incorporated in para-X(b) of the impugned order and further directions to the petitioners to deposit the amount commensurate with the amount of the EMD are concerned, the same sought to be justified on the basis of the text of the Quota Policy notification dated 12th March, 1999 followed by another notification dated 9th November, 2004. But, if one turns to the show cause notices, there is absolutely no reference to the notification dated 9th November, 2004 or any indication indicating exercise of power flowing from Clause-II(vi)(2) of the said notification is being involved. Though in the Order-in-original passed by respondent No. 1 a reference to the notification and powers flowing from para-II(1)(b) of the notification dated 9th November, 2004 is to be found. But so far as para-II thereof is concerned, no reference in this behalf is to be found on which heavy reliance is placed by the learned Additional Solicitor General. The petitioners were never put to notice about the invocation of the powers flowing from the notification dated 9th November, 2004, when the show cause notices were issued. No material is to be found in the show cause notices issued to the petitioners in this behalf. For the first time, reliance was being placed on the said notification in the order-in-original and during the course of hearing of the petitions to justify the impugned order so far as it demands compensation and imposes penalty and directs the petitioners to deposit the amount commensurate with the amount of the EMD.

Having said so, it is necessary to mention that an assistance is also sought to be borrowed from the provisions of the Foreign Trade (R & D) Act, 1992. None of the provisions thereof were invoked at any time by the Revenue.

Apart from the above, a support is also sought to be borrowed from the clauses of the bank guarantee, the relevant part of which has already been reproduced in para-33 (supra) to justify the recovery of compensation from the petitioners vide impugned orders. It is, no doubt, true that the submissions advanced by learned Additional Solicitor General is attractive and cannot be brushed aside lightly. The submission has some strength but no seeds of the submissions advanced or powers sought to be invoked or clauses of various notifications and/or the terms of the bank guarantees sought to be pressed into service were put to the petitioners, so as to seek their reaction to the adverse material sought to be used against them.

During the course of hearing, our attention was also drawn by the learned Counsel for the petitioners to the fresh show cause notice issued to the petitioners u/s 14 for action under Sections 9 and 11(2) of the Foreign Trade (D & R) Act dated 11th January, 2002 for the almost similar and/or identical act or omission committed by the petitioners constituting breach of the provisions of the Foreign Trade (D & R) Act, 1999. However, it appears that same is not proceeded with in view of the pendency of these petitions. It appears that the Revenue has issued second show cause notice under the Foreign Trade (D & R) Act holding prima facie that all the allegations leading to acts and omissions alleged against the petitioners were not forming part of the earlier show cause notices like one dated 20th December, 2004 issued to M/s. Minar Exports, the adjudication of which is still pending.

In the aforesaid view of the matter, the impugned orders are liable to be quashed and set aside and all these matters are liable to be remanded back to the authority-in-original i.e. respondent No. 1 for consideration afresh restricted to the question as to whether or not payment of compensation can be ordered, penalties can be levied and directions to the petitioners to deposit various amounts with further recommendation to the DGFT to suspend IEC number could be issued by the authority-in-original, respondent No. 1.

We make it clear that the remanded proceedings can be heard afresh. The show cause notice dated 20th December, 2004 or such similar show cause notices in other petitions followed by another show cause notice dated 11th January, 2010, if found to be issued in other petitions, can be proceeded with simultaneously by the authority competent to adjudicate upon the same following principles of natural justice. Needless to mention that considering the chequered history and the period already consumed by the pendency of the present petitions, the concerned authority shall proceed to adjudicate upon the remanded proceedings with expeditious dispatch, at any rate, within a period of six months from the date of receipt of copy of this order. All rival contentions revolving around the remanded questions are kept open. Order accordingly.

All the writ petitions are disposed of in terms of this order with no order as to costs.

At this stage, learned Counsel appearing for the respondent No. 3 prayed that security by way of bank guarantee furnished in Writ Petition No. 952/2006 may be ordered to continue for a period of six months i.e. during the pendency of the remanded proceedings with direction to keep it alive till the adjudication is complete. The said prayer made is strongly opposed by learned Counsel appearing for the petitioners contending that security by way of bank guarantee was furnished as a condition of the interim order granted by this Court. She further submits that in absence of any financial liability as on date against the petitioners no security much less by way of bank guarantee can be ordered by this Court.

Having considered rival submissions, the opposition canvassed by learned Counsel for the petitioners needs acceptance. In absence of any financial liability against the petitioners as on date, in our considered view, no security much less by way of bank guarantee can be ordered. In the result, prayer made by respondent No. 3 is rejected.