P. Ramalingam, Ambur vs Deputy Director of Enforcement, Directorate, Madras

David Annoussamy, J.—This is a batch of 9 appeals under S. 54 of the Foreign Exchange Regulation Act, 1973, hereinafter referred to as

the Act. At the outset we may indicate the particular nature of the proceedings out of which these appeals arise and the limited scope of these

appeals as well. Whenever a penalty is to be levied under S. 50, the Adjudicating Officer shall hold an enquiry in the prescribed manner after giving

a reasonable opportunity for making a representation in the matter. As per S. 52, the Appellate Board appointed by the Government on receipt of

appeal may after making such enquiry as they may deem fit affirm or modify the order appealed against. As per S. 54, an appeal which would lie

before this court should only be on questions of law. It is seen from these provisions that the first proceeding is in a nature of departmental enquiry

and in the second proceedings the department is one of the parties and the dealer is another party.

The facts of the case are summarily as follows - The appellant is a dealer in goat hair. He has obtained necessary permission from the official

authorities to send various consignments of that commodity to several places in the East European countries, namely, Czechoslovakia and

Hungary. This happened in the year 1969.

On 5-11-1970 the business premises of the appellant was searched and certain incriminating documents were found and seized. Those

documents disclosed that goat hair purported to be sent ostensibly to soft currency areas were actually unloaded in and meant for West European

countries and hard currency areas. It was also found that in every case the appellant received export proceeds in rupees. Originally, a show cause

notice under S. 12(l) was issued to the appellant. Thereupon the appellant filed a writ petition in the Madras High Court seeking to quash the show

cause notice which related to the contravention of the provisions of Sea Customs Act also. The writ petition was allowed by the High Court and

the order therein was confirmed on appeal. Thereafter, the Department issued another show cause notice under S. 12(2)(b) and under S. 10(1)(b)

of the Act on 17-9-1983. The appellant denied the charges and contended that the goods were actually sent by him to East European countries

and export proceeds were receivable in rupees only. In support of his contention the appellant stated that the consignments were shipped to parties

in East European countries and that shipping and other documents showed that such wag the actual happening. It was stated that in order to reach

East European countries the goods have necessarily to pass through West European sea ports and that the parties at those ports were acting only

as agents, collaborators or partners of the consignees. As there were nine consignments, 9 show cause notices were served and there were 9

adjudication proceedings before the Deputy Director of Enforcement, Madras. In 9 separate orders all dated 31-12-1979 the Deputy Director of

Enforcement found on the basis of the document seized and found in the possession of the appellant and which the appellant has been allowed to

peruse, the irresistible conclusion to be arrived at was that the commodities apparently sent to East European countries were effectively meant and

sent to West European countries. Accordingly he imposed penalties separately under Ss. 10(1)(b) and 12(2)(b) of the Act. The relevant details in

respect of those 9 proceedings are in the following table :-

The dealer preferred appeals before the Foreign Exchange Regulation Appellate Board, Southern Zone, Madras. The Board, after hearing the

parties, the dealer being represented by an advocate and the department being represented by an Officer, came to the conclusion that there were

contraventions of both the provisions of the Act, but however, taking into account the circumstances of the case found that the penalty was

excessive and accordingly, reduced the penalties as follows :-

In these appeals, the learned counsel for the appellant contended that there was failure of principle of natural justice inasmuch as he was not

given copies of the documents seized from him so that he could effectively put forth his defence. He stated that he was handicapped by the fact that

his written explanation was given in the year 1973 exactly on 15-11-1973, and that the adjudication proceedings took place on 9-11-1979, that is

to say, 6 years after his explanation. He also contended that the adjudication authority as well as the Appellate Board have based their decision on

assumptions and that there was no sufficient material to come to the conclusion that he has contravened both the provisions of the Act indicated in

the show cause notices, namely Ss. 10(l)(b) and 12(2)(b).

As far as the failure of justice is concerned, we find in the order of the adjudicating authority that the dealer appellant inspected all the

documents. No doubt, the documents were not returned to him as applied for, since it was not possible for the department to part with the

documents and no application appears to have been made for copies of the documents. Again in the order of the appellate Board we find that the

appellant has been given sufficient opportunity to peruse the documents before the adjudicating authority and that even during appeal proceedings

such an opportunity has been afforded to him. As far as the delay in the proceedings no explanation was given by the learned counsel for the

respondent for the period of six years between the receipt of explanation by the dealer and the adjudication proceedings. But from the mere fact of

delay one cannot come to the conclusion that there was denial of natural justice and no special circumstances were pleaded by the appellant to

show that there was really a denial of natural justice on this count. Though it is a matter of regret that the adjudicating authority has taken so much

of time, we find it impossible to interfere with the order only on account of this delay.

Turning now to the other aspects of the appeals, namely, that the decision of the authorities below are based on assumptions, we find that as far

as the contravention of S. 10(1)(b) is concerned, there is a clear finding by the adjudicating authority that there was an understanding between the

appellant and'' the dealers, in West European countries. The documents also reveal that the dealer had full knowledge that the goods were being

sent to the buyers in the West European countries. As far as the contravention of S. 12(2)(b) is concerned, there is only a cursory sentence in the

order of the adjudicating authority to the extent of saying that the dealer had failed to repatriate the export proceeds in the prescribed manner as

shown in schedule A of the notification referred to above. The appellate Board has concentrated its reasoning only on the question whether the

goods actually reached West European countries or East European countries. It has not given any finding whatsoever as to how the contravention

under S. 12(2)(b) wits perpetrated.

In these proceedings the case of the department is that the appellant got permission for exporting certain commodities namely goat hair to West

(East?) European countries, that he has received payment for exported goods in rupees and that actually the commodities landed in West

European countries from which the appellant was entitled to receive hard currencies. As far as S. 10(1)(b) is concerned as pointed out earlier,

there is a clear finding supported by evidence that the dealer has done a thing which had the effect of securing that the foreign exchange due ceased

to be receivable by him. As far as the contravention under S. 12(2)(b) is concerned, the question of law which arises is whether the course of

action of the dealer amounts really to a contravention of S. 12(2)(b) of the Act. Section 12(2)(b) runs as follows -

Payment for exported goods:-

(2) Where any export of goods has been made to which a notification under sub-sec. (1) applies, no person entitled to sell, or procure the sale of,

the said goods shall, except with the permission of the Reserve Bank do or refrain from doing anything or take or refrain from taking any action

which has the effect of securing that -

(a) . . .

(b) payment for the goods is made otherwise than in the prescribed manner or does not represent the full amount payable by the foreign buyer in

respect of the goods subject to such deductions, if any, as may be allowed by the Reserve Bank, or is delayed to such extent as aforesaid;

Provided that, no proceedings in respect of any contravention of this sub-section shall be instituted unless the prescribed period has expired and

payment for the goods representing the full amount as aforesaid has been made in the prescribed manner.

This section regulates payment of exported goods. It is meant to deal with a specific set of circumstances, in contrast to S. 10 which deals broadly

with duty of persons entitled to receive foreign exchange. For a contravention under S. 12(2)(b) to be made out the essential ingredient is that

payment is made otherwise than in the prescribed manner. The term ''prescribed'' is defined in the Act (Sec. 2(2)) as meaning prescribed by rules

made under the Act. As far as the present transaction is concerned, it is the admitted case of the department that the goods were intended to ''be

shipped to rupee currency areas and that the corresponding amount has been received. It has not been shown what really the contravention under

S. 12(2)(b) amounted to. The order of the adjudicating authority refers to the failure of repatriation of export proceeds in the prescribed manner as

shown in Schedule A of the notification. That schedule A is not available in the record, nor the learned counsel for the respondent has been able to

place it before us, in order to enable us to find out whether any manner of payment has been prescribed by the Rules and whether payment in this

case has been made otherwise than in such prescribed manner. As per the case of the department, the transaction was authorised on condition that

the corresponding value of the goods exported should be repatriated in rupees and it is admitted that the condition has been fulfilled. Because the

goods actually landed in hard currencies areas, hard currencies became recoverable by the dealer and not by receiving it he committed a

contravention of S. 10(1)(b). But no contravention of S, 12(2)(b) has been made out.

Looking at the matter from a different angle we are now concerned with the penalty to be levied. A Division Bench of this Court in Union of

India v. M/s. Marcel Nevens, 1 Madras, (1978) 2 MLJ 122: 1978 Tax LIZ NOC 99, while dealing with Foreign Exchange Regulation Act, as

well as the Customs Act, held as follows -

Speculations certainly should be avoided, particularly when orders of confiscation and imposition of penalty are to be made. The provision is of a

penal nature. The degree of proof that is required for the penalty to be imposed is that which is required in a criminal'' case. We should expect

some material on the basis of which a reasonable conclusion is possible. In fact, the conclusion must not only be a possible conclusion but must be

the only conclusion that could be reached on the material before the authorities.

Such being the degree of proof for a contravention to be visited with penalty, we find it extremely difficult to uphold the order of the appellate

Board where there is not even a single line showing how the contravention under S. 12(2)(b) has occurred. If we see the order of the adjudicating

authority, we do not find any thing except a cursory sentence which we have already referred to above. In the absence of materials to show that a

contravention of S. 12(2)(b) actually happened, we are necessarily led to the conclusion of setting aside the order of the Appellate Board as far as

the penalty for contravention under S. 12(2)(b) is concerned.

Before parting with this case, we want to observe that the order of the adjudicating authority does not contain the list of documents relied on by

the authority. Since the order is subject to appeal before the appellate Board and further appeal before this Court, it will be necessary for the

proper scrutiny of the order passed that all the documents perused and relied upon by the authority are listed with adequate description and

referred to as far as possible in the order itself with indication of their serial number. We do hope that in future this requirement will be kept in mind

by the concerned officers.

In the result, the penalty levied by the adjudicating Authority as reduced by the appellate Board, is set aside as far as the penalty for

contravention under S. 12(2)(b) is concerned. The penalty levied under S. 10(1)(b) as modified by the appellate Board is confirmed. No costs.

Time for payment-one month.

Ordered accordingly.