P. Ramalingam vs Deputy Director of Enforcement

David Annoussamy, J.—This is a batch of nine appeals u/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 u/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 section 52, the Appellate Board appointed by the Government on receipt of appeal

may, after making such enquiry as they deem fit, affirm or modify the order appealed against. As per section 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 proceedings is in the 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 November 5, 1970, the business premises of the appellant were searched and certain incriminating documents were found and seized.

These 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 u/s 12(1) 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 contravention of the provision of the 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 u/s 12(2)(b) and u/s 10(1)(b)

of the ''Act on September 17, 1983. The appellant denied the charges and contended that the goods were actually sent by him to East European

countries and the 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 was 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, nine show cause notices were served

and there were nine adjudication proceedings before the Deputy Director of Enforcement, Madras. In nine separate orders all dated December

31, 1979, the Deputy Director of Enforcement found, on the basis of the documents seized and found in the possession of the appellant and which

the appellant has been allowed to peruse, that 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 sections

10(1)(b) and 12(2)(b) of the Act. The relevant details in respect of those nine 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, learned counsel for the appellant contended that there was failure of the principles 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 November 15, 1973, and that the adjudication proceedings took place on November

9, 1979, that is to say, 6 years after his explanation. He also contended that the adjudicating authority as well as the Appellate Board have based

their decision no 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 sections 10(1)(b) and 12(2)(b).

As far as 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 document before the adjudicating authority had that even during appeal proceedings such an opportunity

has been afforded to him. As far as the delay in the proceedings is concerned, no explanation was given by learned counsel for the respondent for

the period of six years between the receipt of the 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 circumstances were pleaded by

the appellant to show that there was really a denial of natural justice on this court. 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 aspect of the appeals, namely that the decision of the authorities below are based on assumptions, we find that as far

as the contravention of section 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 the 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 contravention of section 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

u/s 12(2)(b) was perpetrated.

In these proceedings, the case of the Department is that the appellant got permission for exporting certain commodities such as goat hair to 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 section 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 contravention u/s 12(2)(b) is concerned, the question of law which arises is whether the course of action of the dealer

amounts really to contravention of section 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-section (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-

(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 for exported goods. It is meant to deal with a specific set of circumstances, in contrast to s. 10 which deals

broadly with the duty of persons entitled to receive foreign exchange. For a contravention u/s 12(2)(b) to be made out, and essential ingredient is

that payment is made otherwise than in the prescribed manner. The term ""prescribed"" is defined in the Act (section 2(1)) 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 u/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 has learned counsel for the respondent 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 that condition has been fulfilled. Because

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

contravention of section 10(1)(b). But no contravention of section 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. Messrs. Marcel Navens [1978] II MLJ 122 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 would 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 u/s 12(2)(b) has occurred. If we see the order of the adjudicating

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

contravention u/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 u/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 a further appeal before this court, it will be necessary for a

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 u/s 12(2)(b) is concerned. The penalty levied u/s 10(1)(b) as modified by the Appellate Board, is confirmed, No costs. Time for

payment-one month.