IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 08/04/2002
Coram
THE HONOURABLE MR. JUSTICE P. SHANMUGAM
and
THE HONOURABLE MR. JUSTICE P. THANGAVEL
C.M.A. Nos.1583 to 1590 of 1999 and C.M.P. Nos.18424 to 18431 of 1999
& 22077 to 22084 of 1999 and 1851 to 1858 of 2000
Union of India, rep. by
The Director of Enforcement,
Enforcement Directorate, .. Appellant in
New Delhi-110 003. all the C.M.As.
Vs.
M/s. SRC Exports Pvt. Ltd.,
No.3, Goomes Street, .. Respondents in
Chennai-1. C.M.A. 1583 of 1999
M/s. ABC Imports & Exports,
No.3, Goomes Street, .. Respondents in
Chennai-1. C.M.A. 1584 of 1999
Rattan Kumar .. Respondents in
C.M.A. 1585 of 1999
Ravi Prakash .. Respondents in
C.M.A. 1586 of 1999
M/s. SRC Industries,
No.3, Goomes Street, .. Respondents in
Chennai-1. C.M.A. 1587 of 1999
M/s. Madras Steel Enterprises,
No.3, Goomes Street, .. Respondents in
Chennai-1. C.M.A. 1588 of 1999
M/s. Engineers & Fabricators,
No.3, Goomes Street, .. Respondents in
Chennai-1. C.M.A. 1589 of 1999
M/s. Arvind Exports,
No.3, Goomes Street, .. Respondents in
Chennai-1. C.M.A. 1590 of 1999
PRAYER The above Civil Miscellaneous Appeals are preferred under
Section 54 of the Foreign Exchange Regulation Act, 1973 against the
Orders of the Foreign Exchange Regulation Appellate Board dated 17.9.19
99 made in Appeal Nos.614, 615, 616, 617, 618, 619, 620 and 621 of 19 99
respectively.
:ORDER
These Appeals coming on for hearing, upon perusing the
Memorandum of Appeal, the orders of the Board, and the material papers in
the case, and upon hearing the arguments of Mr. V.T. Gopalan,
Additional Solicitor General of India assisted by Mr. K. Kumar,
Additional Central Government Standing Counsel for the appellant, and of
Mr. B. Kumar, Senior Counsel on behalf of M/s. K.G. Sellar Khan,
Counsel for the respondents, and having stood over for consideration till
this day, the Court passed the following Judgment :-
J U D G M E N T
P. SHANMUGAM, J.
The respondents before the Foreign Exchange Regulation Appellate
Board are the appellants herein.
2. The Special Director, Enforcement Directorate (Foreign
Exchange Regulation Act), New Delhi, by a common order dated 12.11.1992,
i[pmposed a total penalty of Rs.3,14,40,000/- in pursuance to the 14 show
cause notices issued on the partnership firms and the partners under
Sections 9(1)(a), 9(1)(c) and 9(1)(d) of the Foreign Exchange Regulation
Act, 1973 (hereinafter referred to as the Act) readwith Sections 18(2)
and 18(3) of the Act. The respondents herein preferred eight appeals
before the Foreign Exchange Regulation Appellate Board ( hereinafter
referred to as the Board) against those orders. The Board, by its common
orders dated 17.9.1999, allowed the appeals and set aside the orders of
the Special Director. The present appeals are preferred before this
Court under Section 54 of the Act.
3. The appeals were heard in extenso on 19.2.2002, 26.2.2002,
11.3.2 002, 12.3.2002, 145.3.2002, 20.3.2002 and 22.3.2002. Mr. V.T.
Gopalan, Additional Solicitor General of India initially for the
appellant assisted by Mr. K. Kumar, Additional Central Government
Standing Counsel continued their arguments and learned senior counsel Mr.
B. Kumar argued on behalf of the respondents. Though at the fag end of
the arguments, at the stage of winding up, learned senior counsel Mr. B.
Kumar informed us of the alleged desire of the counsel on record for the
respondents to engage some other counsel, it was pointed out that it will
not be permissible at this stage and learned senior counsel concluded his
arguments and requested this Court to treat as though the arguments on
his side having been completed. Mr. K. Kumar completed his further
arguments in his reply and orders were reserved in the matter on
22.3.2002.
4. We see from the records that as against the eight memorandum
of show cause notices dated 9.9.1983 issued under Section 18(2) readwith
Sections 9(1)(c) and 9(1)(d) of the Act, counsel for the respondents
submitted his replies on 18.3.1984 and personal hearing was given on
4.3.1985 to the counsel for the respondents Sr i D.W. Stewart and the
matter was adjourned to several dates on 16.7.1985, 5.11.1985, 2.6.19 86
and 8.1.1990. On the second set of six show cause notices dated 7
.2.1986, considering the replies and after a personal hearing on 22.2
.1990, 22.3.1990 and 19.8.1992, the original order dated 12.11.1992 came
to be passed in reference to the 14 show cause notices and the charges
contained thereunder. The eight appeals were preferred in the year 1992
and were disposed of by order dated 17.9.1999. In between, there were a
number of proceedings before the Chief Controller of Imports and Exports
and appeals to the Joint Chief Controller of Imports and Exports and also
before the Additional Metropolitan Magistrate – Econonomic Offences were
pursued and the matter has been delayed before several forums.
5. The appeal under Section 54 of the Act lies only on the
question of law from the decision of the authorities below and in the
light of the elaborate arguments advanced, the facts of the case are set
out below for better appreciation of the issues involved ion these
appeals.
6. The following group of industries, namely :
(i) M/s. S.R.C. Industries;
(ii) M/s. S.R.C. Exports Private Limited;
(iii) M/s. Arvind Exports;
(iv) M/s. A.B.C. Imports and Exports;
(v) M/s. Engineers and Fabricators; and
(vi) M/s. Madras Steel Enterprises,
are firms of exporters composed of four partners viz., (i) Sri Ravi
Prakash, (ii) Sri Sasi Prakash, (iii) Sri Rattan Kumar, (iv) Sri Surendra
Kumar, and (v) Sri Mahesh Kumar. The firm had been exporting handloom
clothes and engineering items to England, African countries and some of
the south eastern countries since the year 1975. They have failed to
realise the proceeds thereof for the goods exported by them during the
period 1978 to 1983 in the prescribed manner within the prescribed period
without the permission of the Reserve Bank of India and have acknowledged
the debt created in favour of a person who is a Non-Resident Indian and
thereby violated Sections 9(1)(a), 9(1)(c), 9(1)(d) and 18(2) of the Act
and hence, eight show cause notices were issued to these firms dated
9.9.1983. Another set of six notices for failure to realise the value of
the goods exported during the period 1981 and 1982 by these firms were
issued dated 7.2.1986. After considering their explanation and after
hearing the arguments made by their representatives and the counsel, the
Special Director, in his common order dated 12.11.1992, imposed a total
penalty of Rs.3,14,40,00 0/-. The Special Director, in his order, found
that the major part of the notices related to contravention of Section
18(2) readwith Section 18(3) of the Act, though the notices relate to
exports in reference to different groups and units of their group of
concerns. Since the buyers and the destination had been the same and
that common written submissions were made by the consultant, a common
order was passed for both the groups in pursuance to the show cause
notices namely one set of notices issued on 9.9.1982 and another set
issued on 7.2.198 6. The Special Director, on the preliminary issue as
to the liability of the partners, found under Section 68(1) of the Act
that the main person looking after the export business was Sri Ravi
Prakash who was managing the affairs of his group of concerns and
therefore, it was held that Ravi Prakash was the person incharge of the
business and thus responsible for the conduct of the affairs of the
concerns. It was found that it was Ravi Prakash who has made submissions
vide statements, writ petitions and representations in these matters.
For convenience, the matters were clubbed together under the following
heads :
(1) Non-realisation of proceeds from the exports made to
Freetown, Sierra Leone;
(2) Exports to Raxshire Limited, London; and
(3) Exports to Monrovia.
7. The main arguments advanced by the respondent concerns,
hereinafter referred to as the “exporter”, before the Special Director in
reference to the exports made to Sierra Leone were :
(a) Mr. Toufic Huballa was the importer. However, the goods
landed were forcibly taken away by the mafia group and after the visit of
the Managing Partner Ravi Prakash, they were retrieved.
(b) Mr. Toufic Huballa had paid the pending bills in local
currency and they are waiting in the pipeline for getting clearance.
The Special Director rejected both these submissions on the ground that
though the exports were made on D.P. Terms, the tenors of the bills were
changed to D.A. Terms which enabled the importer to clear the goods
without making payments against the goods and without special permission
from the Reserve Bank of India. The exporter did not pursue the Central
Bank all these five years to get the value released by making payment in
the foreign exchange, stating that the amount was waiting in the pipeline
and therefore, there is no truth of bonafide in such empty claims.
8. With reference to the exports made to M/s. Raxshire Limited,
London,the argument on behalf of the exporter was that inspite of the
rigorous efforts for early release of the foreign exchange in order to
file a suit against the overseas buyer, there was a failure on the part
of the R.B.I. to release the foreign exchange for the legal expenses and
by that time, the foreign buyer went into liquidation and therefore, they
were not at fault. The said argument was rejected by the Special
Director on the findings that the firms ought to have received the
payments in India within six months from the date of export and that the
shipments made by the firms were disposed of at London itself as cash
sales and only a small fraction was sent to Nigeria and that payment that
was made at the old rate in the local currency is not in accordance with
the normal procedure and that R.B.I. has refused to grant extension of
time and that no credence can be attached to a letter from the Bank of
Credit and Commercial International (B.C.C. I.), London stating that
they have paid the bills to prove that the exports had been realised.
The non-release of foreign exchange by the R.B.I. is a ruse and has no
connection with the charge.
9. With regard to the exports made to Monrovia, the arguments
made before the Special Director were that the Board authorities had
given non-delivery certificate and they have lodged a claim with the
insurance company and the importers have permitted the firms to adjust
these amounts received from the insurance company. The Special Director
refused to accept this case in the absence of any records in reference to
the non-delivery certificate and the insurance claim preferred and the
statements of the alleged claims. The Special Director also found that
M/s. S.R.C. Exports, in their letter dated 19.5.1984 to the B.C.C.I.,
the negotiating bank at London, intimated them that no legal action be
initiated against M/s. Raxshire Limited and that Sri K. A. Sekar, an
officer of the Punjab National Bank, in his statement dated 28.11.1985,
had initimated the Enforcement authorities that on his visit to Banjul,
he had contacted the buyer who had informed him that no payment was due
to the exporter and in fact, it was the exporter who owned certain
amounts to them. The Special Director refrained from imposing any
penalty in reference to the show cause notice T4/69-M83 No.6 dated
9.9.1983, since the said contravention was in reference to the payment of
Rs.10,000/- for treatment. Ultimately, it was found that the offences
under Sections 9(1)(c) and 9(1)(d) readwith Section 18(2) of the Act were
established and a penalty as indicated was imposed on the firms and the
partners.
10. The Appellate Board also considered the appeals under the
three heads. The findings of the Board are as follows :
Exports to Sierra Leone :
(a) There is no prohibition for an exporter to change the terms
of payment from D.P. to D.A.
(b) It is open to an exporter to sell the goods by way of export
on D.A. terms, D.P. terms or under L.C. as per his business decision.
(c) The remittance of the amount had not been made so far due to
the sovereign act of the Government of Sierra Leone, i.e. pipeline
system, on which neither the foreign buyer nor the respondents have any
control.
(d) Once payments have been made in the local currency, it has to
be treated as good as the payment has been made.
(e) All reasonable steps in its true import and purport would not
necessarily mean series of action. Even a single step towards
realisation of export may amount to taking all reasonable steps.
(f) A business decision is based on consideration which is
important than all reasonable steps towards realisation.
Exports to M/s. Raxshire Limited, London :
(a) The Board found that the non-repatriation is solely due to
the inaction of the R.B.I. to release 15,000 to initiate legal action.
(b) M/s. Raxshire Limited were unable to get the proceeds of
their sales to Nigeria in view of the military coup in that country in
the year 1978, a fact which is very well known.
(c) Cheques endorsed by M/s. Raxshire Limited were dishonoured.
(d) It was permissible, despite the firm’s letter to the
B.C.C.I., to secure payment.
Exports to Monrovia :
(a) The Board found that though the certificates used the
expression “short landing”, the quantity of goods short landed is the
same as that of the goods shipped and therefore, there is adequate
evidence of non-delivery of the cargo.
(b) The adjudicating officer had assumed false factual assumption
inspite of the suit filed against the insurance company before the Madras
High Court.
(c) The burden is on the department under Section 18(2) of the
Act to prove that the goods exported by the party have been cleared by
the foreign buyer and that payments, therefore, were not made.
(d) If the foreign buyer did not clear the goods, the question of
contravention under Section 18(2) of the Act could not have arisen.
(e) The Board also found that the statements made by K.A. Sekar
under Section 40 of the Act are inadmissible in law and ought not have
been relied on.
(f) The written agreement with M/s. H.A. Farag & Sons Limited,
Banjul is not conclusive evidence in support of the guilt against the
respondents.
11. Learned Additional Solicitor General submitted that the
approach of the Appellate Board is perverse and the Board proceeded as
though it holds a special brief for the respondents and it is totally
opposed to the provisions of the Act and the Rules. According to him,
the change of terms of payment of the bills from D.P. to D.A. without
permission from the R.B.I. would clearly amount to violation of the
provisions of Section 18(2) of the Act. The interpretation that ‘all
reasonable steps’ embodied in Sub-section (3) to Section 18 would mean
single step is unreasonable. The seized letter dated 19.5.1984 written
by the respondents to the B.C.C.I. and also the letter dated 6.6.1 984
from the Hindustan Commercial Bank to M/s. S.R.C. Industries show that
the respondents have taken a unilateral decision that no action should be
initiated against M/s. Raxshire Limited, London. The conduct of the
respondents inspite of the heavy oustanding from M/s. Raxshire Limited
should have been viewed properly and held that the nonrealisation was
only due to their unilateral decision and has nothing to do with the
refusal of the R.B.I. to sanction the legal expenses, which has been
upheld by the High Court. According to him, the appellate authority
failed to see that the failure of the importer at London to realise the
proceeds or to release the goods to the Nigerian customs have no bearing
in these cases and further, it is in evidence that most of the goods were
sold at London itself. He submits that the ingredients of Sections
9(1)(c) and (d) of the Act have been clearly made out in these cases.
Sri Ravi Prakash, in his statement, has admitted that they have agreed to
pay compensation of US$ 30,000 to M/s. H.A. Farag & Sons Limited,
Zambia, which is a clear violation without the permission of the R.B.I.
He submitted that the appellate authority placed the burden of proving on
the Directorate of Enforcement wrongly and inspite of the presumption
available under Section 59 of the Act. He has referred to the
substantial questions of law set out in Groud No.25 of the appeals.
12. In reply to these submissions, Mr. B. Kumar, learned
senior counsel made the following submissions :
(a) The geographic location of Sierra Leone in the fareastern
African continent makes the export to reach the destination one year.
(b) M/s. S.R.C. Industries Group have been awarded the
Certificate of Import for outstanding export.
(c) The goods in question were attempted to be taken possession
of by the mafia group and some goods were sold by way of auction for
paltry sums.
(d) Their importer had to move the High Court to re-possess the
goods and ultimately, the amounts are in the pipeline, as proved by the
various letters and telex messages.
(e) The exports were to be considered at three stages –
Stage 1 : The first stage is in reference to Sierra Leone :-
(i) The goods were re-exported to Nigeria.
(ii) There was a coup in Nigeria in the year 1978 followed by
looting and arson and therefore, there was difficulty in realisation.
(iii) The importer advised the respondents to have patience.
(iv) Payments were made in 13 cheques which were subsequently
dishonoured.
(v) The partner visited London and had discussions with the
importer Sri Manmohan Chopra.
Stage 2 : The second stage is in reference to M/s. Raxshire Limited,
London from November 1984 onwards :-
(i) Sri Manmohan Chopra had an ulterior intention of defalcation
and therefore, the respondents obtained legal opinion that suits could be
filed, but requested legal fees of 40,000 to 60,000.
(ii) Permission was sought for from R.B.I. on 29.1.1985 to remit
15,000 and therefore, failure has resulted in liquidation of M/s.
Raxshire Limited, London.
Stage 3 : Claims were sought to be preferred with the liquidator, but no
assistance was forthcoming from the R.B.I.
Insofar as the exports to Monrovia are concerned, it is submitted that
the suits were initiated at Madras for insurance claims and they were
permitted to adjust the amounts due. The suits are pending before the
High Court of Madras.
13. On these legal submissions and the factual basis, the points
that arise for consideration before this Court are :
(1) Whether there is a violation of Section 18(2) of the Act by –
(a) the change of terms of payment of the bill from D.P.
to D.A. ?
(b) whether there were reasonable steps taken by the
exporter ?
(c) whether the availability of funds in the pipeline
system would amount to reasonable steps ?
(2) Whether the burden of proving reasonable steps is on the
respondents or the appellants and is there a legal presumption available
under Section 59 of the Act ?
(3) Whether the statement made under Section 40 of the Act can be
relied upon ?
(4) Whether the payments made by one non-resident to another
nonresident on the instruction of a resident is violative of Section
9(1)( a) of the Act ?
14. M/s. S.R.C. Industries and its sister concerns have been
exporting Madras Handkerchieves to Sierra Leone after availing pre and
post shipment facility from Punjab National Bank. They have also availed
cash assistance to the tune of Rs.39,57,566/- and export replenishment of
Rs.22,13,263/-. The respondents are also facing criminal charges under
Section 18(2) readwith Section 18(3) readwith Section 16(1) of the Act
punishable under Section 56(l)(i) of the Act.
15. From the statements filed by the appellants describing the
various documents, the total amount of export outstanding culled out from
the 14 show cause notices are not disputed by the respondents. As per
these statements, the eight show causes notices were issued dated
9.9.1983 and six show cause notices were issued on 7.2.1986 for violation
of Section 18(2) readwith Section 9(1)(c) of the Act. The total amount
which has been failed to be repatriated as per these notices at the
present rate of exchange amounts to Rs.42,32,68,043/-. The details of
show cause notices and the corresponding forms, their bills, its value
and the date of export necessary for the purpose of the case are found in
the “Statement filed by the Appellant”, which to be treated as part of
this judgment for the factual appreciation of the material facts.
16. The show cause notices refer to the G.R.1 Form issued under
Rule 9 of the Foreign Exchange Regulation Rules, 1974 with the serial
number, the date of the export and the amount due for realisation. The
G.R.1 Form is a declaration form to be furnished by every exporter for
exporting the commodities, setting out the name of the exporter, name and
address of the buyer/consignee, the customs assessible value, shipping
bill number, country or destination of the goods, description of the
goods, name of the steamer, date of actual shipment and the port, the
units or quantity of the goods and the value of the export. The exporter
undertakes that he will deliver to the bank, the foreign exchange
representing the full export value of the goods within six months as
prescribed in Rule 9 of the Foreign Exchange Regulation Rules, 1974. The
period of six months has been specified in the G.R.1 Forms. A reading of
the statements will reveal that exports were made as evidenced by the
G.R.1 Forms in the years 1978, 1978, 1980, 198 1, 1982 and 1983. The two
sets of show cause notices deal with the exports of goods to M/s. Toufic
Huballa, Freetown, Sierra Leone, to M/s. Raxshire Limited, London, to
the buyers in Monrovia, to Huballa, Freetown, Sierra Leone and to M/s.
H.A. Farag & Sons Limited.
17. Written submissions were made by the representatives of the
respondents before the Special Director and the appellate authority and
the authorities below have considered the issues mainly under three
heads. Therefore, for the sake of convenience, the issues can be
discussed in the light of the legal questions arising under those heads.
18. Exports to Sierra Leone :
Six show cause notices relate to these exports. The importer is
Toufic Huballa, Free Town, Sierra Leone. It is not in dispute that all
the exports were made as per the Exchange Control G.R.1 Forms submitted
to the Customs along with the duplicate and triplicate copies. The
duplicate copy of every Exchange Control Form requires the exporter to
indicate whether the bills drawn are on D.A. or D.P. terms (D.A. =
Documents against acceptance and D.P. = Documents against payment). In
other words, under D.A. terms, the goods can be cleared by the importer
without making payment for the goods. The exporter, having made a
declaration and undertaking under Rule 6 of the Foreign Exchange Rules
that he would negotiate the bills under D.P. terms and that he would
undertake to deliver to the bank, the foreign exchange representing the
full export value of the goods within six months as prescribed in Rule 9,
has clearly contravened the said rule and the undertaking made under the
said rule by changing the tenor of the bills from D.P. to D.A. terms.
The direct result of this change is the nonrealisation of the export
proceeds. As could be seen from the detailed statements now furnished by
the appellant along with the annexures to the two sets of show cause
notices, exports to Freetown, Sierra Leone were made from 1978 onwards
and the bills were pending unrealised. If the exporter had not conceded
for the change of terms, there was no possibility for the importer to
take the goods without paying the value. This practice had been going on
con tinuously from the year 19 78 onwards. The dates of the G.R.1 Forms
and the invoice of the dates would clearly indicate that the goods were
continuously in the process of export every month from the year 1978
onwards. If the amount was not paid from the year 1978 onwards, there is
no reason as to why the exporter was continuously exporting the goods
without their being a corresponding payment for the goods which were
shipped earlier. Though the learned senior counsel for the respondents
assured this Court that he would find out the reasons for the continuous
exports from 1978 to 1983 inspite of the non-payment, he did not submit
the reasons or explanation for the same. In other words, if for an
export made in August 1978 the amounts were not remitted, why the
respondents continued to export the goods in October 1978, April 1980,
May 1980, June 1981, July 1981, August 1981 and like this, upto 1983 ?
The view of the Board that there is no rule prohibiting the change of
tenor of the bill is incorrect. The further finding of the Appellate
Board, that it was a business decision and that R.B.I. was aware of the
fact, cannot be accepted.
19. A Division Bench of this court in UNION OF INDIA VS. S.K.
SENJAN CHETTIAR & SONS [I.L.R. 1996 (2) MADRAS 1569] has taken the view
that the change of the terms of payment without the permission of the
R.B.I. is illegal and in such a situation, the provisions of Section 18
(2) of the Act get attracted and mens rea is not at all required, and if
any act or omission had taken place, there was violation of the concerned
Section, justifying the penalty. Section 18(2) of the Act says that
where any export of goods has been made, no person shall do or refrain
from doing anything which has the effect of delaying the payment beyond
the prescribed period. By the conduct of the exporter in altering the
mode of payment, he had, in effect, allowed the goods to be released,
resulting in failure to pay for the value of the goods all these years.
Rule 9 of the Rules says that unless or otherwise authorised by the
R.B.I., the amount representing the full export value of the goods shall
be paid through the authorised dealer and in the manner specified in the
Second Schedule. Therefore, the view of the Appellate Board, reversing
the order of the Special Director holding that there is no contravention
of Section 18(2) of the Act is clearly illegal. The further
of Section 18(2) of the Act is clearly illegal. The further reasoning
that the change of terms is a business decision is unacceptable since the
said decision continues to be operated upon for nearly three years
without realising the foreign exchange for the subsequent exports also.
There is absolutely no justification to take such a business decision if
the value of the earlier exports has not been realised and the exports
continued to be negotiated on D.A. terms inspite of the failure of the
importer to pay the value of the goods.
20. The justification by the respondents for their action is
that remittance of export value was made in the local currency and the
said payment is as good as actual realisation and that the respondents
have no responsibility once it is seen that there is a pipeline system
prevailing in Sierra Leone. The said stand is on the basis of a letter
of the B.C.C.I. of the year 1987. From the documents filed by the
respondents, there is no factual basis for the contention that the
amounts were available in the pipeline. Page 11 of Volume II of the
typed set of papers contains a letter of Toufic Huballa dated 18.9.1981
wherein he says that instructions have been given to M/s. S.R.C.
Industries telegraphically to stop all shipment of goods to him until all
outstanding bills are settled. By a reply letter of M/s. S.R.C.
Industries dated 19.10.1981, they have acknowledged that since May 1981,
none of their bills have been paid at all. They say, in that letter, as
follows :
“On your promise, we have converted the bills for US$ 20,000 also
into D.A. so that you will honour old outstanding bills of that much
amount. But, you have honoured bills only for about 50,000 which comes
to US$ 80,000 only. Apart from this, out of new shipments, you have not
paid any of the bills. Shipping companies are informing us that
shipments made upto August 1981 from here have already reached the
destination.”
In their further telex message dated 3.11.1981, they have informed Toufic
Huballa (TH) that they will transfer documents to other buyers who are
interested. In their registered letter dated 25.12.1981, they say as
follows :
“Lastly, we have received your telex stating payments cannot be
made since the market is very bad and to stop all the shipments, which we
have stopped immediately on receipt of your telex and we have not shipped
anything after that.”
Toufic Huballa writes to the President of India in his letter dated 1
7.10.1983 that for the first time, they had problems about the goods
which had arrived in Freetown that few mafia type of persons have done
some mischief and taken away the goods from the port without any payment
or legal process. They also say that they are ready to pay the country’s
exporters M/s. S.R.C. Industries for their total outstanding bills
which amount to about US$ 3.4 million and thus take delivery of the
goods. By this time, the first set of show cause notices had been issued
dated 9.9.1983. There is no mention in the correspondence referred to
above by the respondents that the amounts were in the pipeline. It is
only long thereafter, i.e. on 23.5.1987 they inform the Joint Controller
that the buyer had paid their group concerns the entire pending bills to
the tune of rupees 4.5 crores through the B.C.C.I., who are the
correspondents of Punjab National Bank. As rightly pointed out, no
credence can be attached to this letter, which obviously is made for the
purpose of the case. From the correspondence referred to above, it is
clear that inspite of Toufic Huballa requesting to stop further exports
and inspite of his failure to pay the bills, good were being exported on
altered terms and monies were not officially received through the foreign
exchange. The stand of the exporter that the goods did not reach the
destination because of mafia action and that some goods were auctioned
cannot be correct in the light of the letter of Toufic Huballa that
problems arose for the first time only in the year 1983. There is no
explanation for all the exports made from the year 1978.
21. There is no acceptable explanation which is opposed to the
tenets of business prudence as to why the exporter continued to maintain
the same tempo of export if their amounts had not been realised and if
really the whole amounts were paid in the year 1987 in their local
currency, as to why since 1987 the amount had not been repatriated. We
are unable to appreciate the stand of the Board that a prudent business
decision had been taken by the exporter and that the exporter was
satisfied with the payment of outstanding bills in the local currency.
The view of the Board that remittance of the amount was a sovereign act
of the Government and that the respondents could do little in the above
matter and that there was exchange problem and that the view of the
adjudicating authority is an erroneous perception are all special
pleadings without any basis made on behalf of the defaulting exporter.
Even in reference to the payment, which is alleged to have been made in
the local currency, the R.B.I.’s letter dated 21.7.198 8 finds that the
representation that the amount in the local currency to the tune of
rupees 4.5 crores on 9.7.1987 has been remitted is not correct. The
total amount paid in the local currency on that date amounts to Leones
350912/709, which as per the US = Leone exchange rate prevailing as on
that date, works out only to US$ 81,691, i.e. about rupees 10.5 lakhs
and not rupees 4.5 crores as claimed by the exporter. The overseas buyer
in Sierra Leone has paid the bills pertaining to 1981-1982-1983 at the
rate of 1 $ = 1 Leone, when the official rate of exchange as on the date
of the payment was around 1 $ = 43 Leones, which is not in accordance
with the normal procedure. The buyer should have made the payment as per
the rate prevailing on the date of payment and not as reported by the
exporter as per the rate as on the date of bills, which in these cases,
is about 4 to 6 months prior to the date of payment. It was further
pointed out by the R.B. I. that enquiries with the Indian Embassy have
revealed that there are no official instructions in Sierra Leone that
bills have to be paid at the exchange rate prevailing on the date of the
bills and if the bills are in US dollars, the importer has to make
available to the supplier, the actual amount in foreign exchange. By not
protesting against the highly arbitrary and unfavourable terms of
payment, the exporter has acted in a manner detrimental to the foreign
exchange interests of the country. Ultimately, the R.B.I. refused to
grant extension of time, which was confirmed by this court in Writ
Petition No.9295 of 1988 by an order dated 31.7.1997, which has become
final.
22. The view of the Board that the alleged payment in local
currency would absolve the liability of the exporter is patently illegal.
The Board proceeded on the basis that the Special Director has lost the
business perspective and that a single step in getting the amount
deposited in local currency would be sufficient to establish that all
reasonable steps have been taken by the exporter. The conclusion of the
Board that such an act will constitute all reasonable steps is basically
illegal. Section 18(3) of the Act draws an inference on the failure to
repatriate the value of the exported goods within the prescribed period
unless the contrary is proved by the exporter that he had taken all
reasonable steps to receive or recover payments for the goods. As per
this provision, we do not find any reasonable step taken by the exporter
during the period 1978-83 except claiming the deposit in local currency,
that too after the receipt of the show cause notice. On the contrary, it
is seen that the exporter had changed D.P. terms to that of D.A. terms;
secondly, even the alleged payment in local currency is far less than
what is required; and thirdly, no amount has been repatriated till date.
23. It is seen from the records that the total export proceeds
outstandings in respect of the exports to Sierra Leone, United Kingdom
and other countries against the exporter firms amounted to Rs.11.66
crores. The exporter claimed that payments were made by the overseas
party at Sierra Leone in local currency to the tune of Rs.4.5 crores.
Whereas, the payment alleged to have been made some time in the year 1
981-83 in local currency is a sum of Rs.10.5 lakhs as against the total
due ot Rs.4.5 crores. The exporter had not produced the records to show
even as regards as this payment. Further, the exporter ought to have
protested as to the unfavourable terms of payment at the old exchange
rates. The Joint Controller of Imports and Exports, therefore, has, in
our view, rightly taken the stand in the affidavit filed in December 1998
in W.P. No.9295 of 1988 as follows :
“This respondent has reason to believe that the petitioner has
colluded with the foreign buyers in an attempt to defraud the country’s
foreign exchange interests and to deprive its valuable foreign exchange.”
…..
“The foregoing would make it abundantly clear that the petitioner
was not serious about realisation of the export proceeds and that his
application for extension of time was not made bonafide. This respondent
has reason to believe that this application for extension of time to
realise the export proceeds has only been filed with a view to protract
the proceedings or delay any action that may be taken by the first and
second respondents herein with regard to the withdrawal of cash
assistance for non-repatriation of exports. Thus, the exporter has
clearly contravened the provisions of Sect ion 18(2) of the Act.”
24. Exports to M/s. Raxshire Limited, London :
Two sets of show cause notices issued in the year 1983 and 1986
also deal with export of goods to M/s. Raxshire Limited, London and the
failure to repatriate the value of the goods. From the written arguments
of the representative of the exporter as found in Volume I of the typed
set of papers, it is seen that the alleged violation in respect of
exports to M/s. Raxshire Limited figure in seven notices and the total
invoice value of outstanding is shown at
27,38,195.45 and Rs.10,69,000/- and after certain remittance, the
balance according to them was 25,87,214.28 and Rs.7,96,500/-.
According to them, Manmohan Chopra floated a company called Raxshire
Limited with the help of his father S.L. Chopra who was the Chairman of
Punjab National Bank in the year 1980. They further state that S.L.
Chopra promised them to help as Chairman of Punjab National Bank in many
ways provided they exported the goods to his son’s company at London on
use-and-collect basis. They have entered into this kind of arrangement
on the basis of the assurance of S.L. Chopra. According to them, the
first consignment was exported on 23.8.1980 and the last consignment on
12.5.1983. They also admit that they were not getting the bills paid and
that the 13 cheques presented to the tune of 6,12,759.51 issued by the
Nigerian buyer were dishonoured and that as a prudent businessman, their
Director Mr. Ravi Prakash visited United Kingdom in May 1984 to find out
the exact position and also to explore the possibility of realisation of
dues and thereafter, he gave a letter to the Bank namely B.C.C.I. not to
initiate any legal action and that they have learnt in November 1984 on
further enquiries that it is better to take legal action in order to
secure the dues. Learned senior counsel Mr. B. Kumar for the
respondents referred to the report of a private detective in reference to
Manmohan Chopra dated 28.6.1990 , wherein the detective agency namely
Thames Investigation Services, while reporting their enquiry, in
reference to the Punjab National Bank, submitted that they met Mr. M.
Chopra and made enquiries. According to the report, Mr. and Mrs.
Manmohan and his family were residing temporarily at 75, Nottingham
Terraince. Excepting the said residence, he has no other property. It
is curious to see that the investigating agency did not say anything
about the liquidation of Raxshire Limited owned by Sri Manmohan Chopra.
25. The explanation as well as the argument advanced on behalf
of the exporter is made in reference to three stages:
– In the first stage, the goods exported to M/s. Raxshire
Limited were re-exported to Nigeria by them and there was a coup in
Nigeria in the year 1978 followed by looting and arson and therefore,
there was difficulty in realisation. The importer requested the exporter
to have patience. The Nigerian buyer had made payments by way of 13
cheques for 6,77,759 which were subsequently dishonoured on
presentation.
– The second stage is from November 1984 onwards. According to
the exporter, they found out that the foreign buyer, i.e. M/s. Raxshire
Limited and its Director Shri Man Mohan Chopra, in connivance with his
father Cham Lal Chopra, the foreign buyer’s father, was making false
excuses about the matter and they contacted the legal solicitors in
London and on their assurance that there is possibility to trace Raxshire
funds in the hands of the Director of the company, they sought permission
of the R.B.I. for release of foreign exchange of 15,000 for initiating
legal action. They have enclosed confidential documents to show as to
how the assets of Manmohan Chopra are available for taking emergent
steps. Inspite of this, the R.B.I. took its own time and refused to
release the fund for taking legal action.
– The third stage involves their claims to be preferred with the
liquidator, but the R.B.I. has not assisted them by releasing the funds.
It is true that the R.B.I., in their communication dated 27.2.1987, have
informed the buyer in reference to their request for release of funds for
taking legal action that M/s. Raxshire Limited has been placed under
liquidation and M/s. Ian Franses Associates have been appointed as the
Liquidator. But, the crucial question is that the bills were outstanding
for the exports made from 21.6.1979 to 21.3.1983. The letter of M/s.
S.R.C. Exports for and on behalf of S.R.C. Group of Industries to the
B.C.C.I., London, their negotiating bank, dated 19.5.1984, is found at
page 44 of Volume I. In this letter, the exporter says as follows :
“For various reasons, these bills have not been paid by the
drawees, which fact is very well known to our bankers in India. Due to
bad economic situation in Nigeria, which is the ultimate destination of
our products, our buyers from that country did not honour our drawees,
nor are they in a position to order further import of our product. We
are, therefore, in a helpless situation, as a group as is our importer
M/s. Raxshire Limited.
We have no intention of raising any dispute with
M/s. Raxshire Limited because we know fully well their good intentions
and helplessness and we are sure that whenever they are in a position to
get money from Nigeria, they will honour our drawees.
We have already told our bankers here in this
respect and we did not want any kind of legal action against our drawee
M/s. Raxshire Limited. It is therefore requested that no such action
need be initiated without reference to us.”
M/s. Hindustan Commercial Bank, Madras has written a letterto S.R.C.
Industries dated 6.6.1984 which is as follows :
“All the above bills have become overdue for payment. We have
been informed by B.C.C.I. that you have agreed to wait until the drawee
is in a position to make the payment.”
The stand of the exporter that no legal action need be taken is inspite
of the fact that 13 cheques issued in June 1983 by the third party
towards the dues have been dishonoured. Mr. Ravi Prakash, the Managing
Partner of the exporter, in his letter to the Director of Central Bureau
of Investigation found at page 69 of Volume I, says that Manmohan Chopra
sold most of the goods at London itself as counter cash sales through
brokers and only a small fraction of goods have been sent to Nigerian
parties by M/s. Raxshire Limited.
26. From the above, it is clear that the exporter has not taken
reasonable steps for repatriating the value of the goods exported from
the year 1978 to 1983 and that they have decided not to take any legal
action. It appears that only after receipt of the show cause notices,
they have changed their stand stating that M/s. Raxshire Limited are
trying to defraud them and that they want to initiate legal proceedings
and also requested the R.B.I. for release of 15,000. The refusal of
the R.B.I. to respond to their request is taken advantage of and argued
that but for the rejection by the R.B.I., they would have realised the
funds. We are totally unable to agree with the stand of the exporter.
It is their further case that they came to know of the liquidation of
M/s. Raxshire Limited only from the information furnished by the R.B.I.
in the year 1987. It is too difficult to accept their case that though
they had been corresponding with their solicitors and that they have
investigated about the activities of M/s. Raxshire Limited, they were
not informed of its liquidation proceedings.
27. Yet another curious aspect is that the exporters have
written a letter dated 28.7.1989 to M/s. C.G. Adams Associates who is
said to be one of the joint liquidators, requesting him to make a trip to
India and that they are ready to bear all his expenses such as his to and
fro air fair, his stay in India and also arrange for his meeting with all
the connected officers of various departments of the Government of India
etc., for which M/s. C.G. Adams Associates agreed to come, subject to
the payment of a fees of 5,000. Thereafter, they wrote to the Joint
Controller, R.B.I. on 14.10.1989 referring to their earlier failure to
sanction 15,000 and that they want a further permission for 5,000 in
foreign exchange. The stand of the exporter in the year 1984 was not to
initiate legal proceedings, but his subsequent request for funds to
enable him to take legal action, therefore, cannot be construed as
efforts to realise the export proceeds within the stipulated period.
Besides, no credence can be attached to the letter dated 26.8.1983 from
the B.C.C.I., London that they had paid bills totalling 2,57,722.63 on
account of S.R.C. Group of Companies.
28. It is an admitted fact that Ravi Prakash, the Managing
Partner of the group of export concerns had been making personal visits
to London quite often as could be evidenced from the various
correspondence and he having categorically informed the drawee bank on
19.5.1984 that no legal action need be taken against the importer, his
sudden discovery that there was a collusion between Man Mohan Chopra and
his father Cham Lal Chopra and that therefore they wanted to take legal
action is hardly convincing. It is further astonishing to find that the
export concern is not aware of the liquidation proceedings until the
R.B.I. had informed them about it in the year 1987. Their stand that
from 1985 to 1987, during the period of their request for release of
funds for taking legal action, they were not aware of the liquidation
proceedings against M/s. Raxshire Limited cannot be accepted as a
genuine stand. We are clear that such a request made some time in June
1985 and the intimation of the liquidation proceedings, which are taken
advantage of, have emanated only after the legal proceedings initiated by
the Enforcement Directorate and R.B.I. and their attempt is only to
build up a case of their aborted attempt to get the funds and put the
blame on R.B.I. for non-release of funds. It is obvious that when a
liquidator is appointed in the year 1987, the proceedings of liquidation
could have commenced long prior and the exporter should be aware of what
is happening in that company. The findings of the appellate authority
that the exporters were prevented from taking effective timely steps by
initiating legal action which was solely due to the inaction of the
R.B.I. are perverse findings and without any basis. As a matter of
fact, the learned senior counsel for the respondents could not even give
us the date on which they have sought for the permission of grant of
their legal expenses and while referring to the letter dated 22.5.1985,
they have made a reference to the letters from June to May 1985. None of
the copies of those letters referred were furnished or produced before
us. It is admitted by M/s. Raxshire Limited that problem arose only in
the year 1981 for the first time. Their earlier plea that there was a
coup in Nigeria in 1978 which is a well known fact and that there were
difficulties in getting the sale proceeds and that there is justifiable
reason for the delay of these have all fallen to the ground on the
exporter’s own admission that it was found out that most of the goods
have been sold in London itself and only a small fraction of the goods
were exported to Nigeria. Therefore, it is a clear case of failure on
the part of the exporter in not realising the proceeds from 1978 to 1983.
Their subsequent attempt is only to justify their inaction.
29. Exports to Monrovia :
The case of the exporter is that the goods sent to M/s. West
Coast Enterprises, the main importer in Monrovia did not reach Monrovia
and therefore, they refused to pay the amount. They have also claimed to
have furnished non-delivery certificate issued by the port authorities
and therefore, they state that they have lodged a claim with the
insurance company and they are pending settlement. One of the consignees
M/s. K. Niam Brothers and P.G. International had disappeared and they
could not realise from them and therefore, they have applied to the
R.B.I. to waive this amount because it was impossible to recover this
amount. In reference to certain co nsignments, it was claimed that the
goods were not taken delivery of because of the delay in arrivals and
therefore, they requested for re-shipment and the same had not been done.
They have also taken certain actions in reference to some of the cheques
dishonoured for filing civil suits in Monrovia. The Board found that
they are satisfied that though the certificates were available in the
file and though they used the expression “short landed”, it is same as
though the shipped goods were landed and therefore, there is adequate
evidence of delivery of the goods. The Board also proceeded to state
that the burden is on the department to prove that the goods exported by
the party have been cleared by the foreign buyer and the burden has not
been discharged. The Board also referred to the request for re-shipment.
We are unable to see as to how ‘short landing’ is the same as that of
landing of shipped goods. The terminology used for short landing refers
to the incomplete landing of shipped goods. It is ununderstandable as to
how the burden is on the department to prove that the goods exported by
the party have been cleared by the foreign buyer. The burden is placed
on the exporter under Section 18(3) and Section 59 of the Act. The
conclusion of the Board, therefore, is clearly illegal.
30. In this context, it is seen that Sri K.A. Sekar, an Officer
of the Punjab National Bank, in his statement dated 28.11.1985 before the
Enforcement authorities, had stated that during his visit to Banjul
(Monrovia), he had contacted the buyer who informed him that no payments
were due to the exporter and that it was the exporter who had to pay
certain amounts to them. Sri Sekar had also given extracts of the
accounts of M/s. S.R.C. Industries maintained by M/s. H.A. Farag &
Sons Limited, Banjul which revealed that goods to the extent of 36,800
had been exported from Banjul to Taufic Huballa on instructions from Sri
Ravi Prakash. The statement of the Bank official is admissible under
Section 40 of the Act and there is no reason as to why it cannot be
relied upon. Therefore, the case of the exporter that the goods were not
cleared and hence they could not repatriate its value is unacceptable.
The conclusion of the Board in disregarding this important aspect is
illegal.
31. In reference to the show cause notice T-4/69-M/83, it is
seen that that an agreement was seized during the raid whereby it is seen
that the said agreement was written in the handwriting of Sri Ravi
Prakash agreeing to pay a compensation of US$ 3,000 to the buyer M/s. H.
A. Farag & Sons Limited of Africa. The finding of the adjudicating
officer is that the charge is clearly proved in the light of the written
agreement by Ravi Prakash himself. The Board has accepted the stand of
the exporter that this agreement was not intended to be acted upon. The
Board has held that since there was a pre-condition for R.B.I.’s
permission, the agreement has to be read as one contingent on the
permission of the R.B.I. and therefore, the exporter cannot be held
guilty under Section 9(1)(c) of the Act. This agreement has to be read
with the statement of Sri K.A. Sekar, former Assistant Zonal Manager,
Punjab National Bank, given under Section 40 of the Act, disclosing that
there was an overt action on the part of the exporter in pursuance to the
said agreement seized by the department. According to him, the account
of M/s. H.A. Farag & Sons Limited, Banjul, Zambia showed that there was
still a sum of 4,793.87 remaining to be paid to M/s. H.A. Farag &
Sons Limited in connection with the export and that M/s. H.A. Farag &
Sons Limited wrote a letter dated 25.5.1983 to the exporter asking them
to credit the amount to their account. The Board erred in accepting the
case of the exporter that the agreement was not acted upon.
32. A Division Bench of this Court in M/S. SAMUEL & CO. VS.
FOREIGN EXCHANGE REGULATION APPELLATE BOARD (1993 LAW WEEKLY 633), held
that when a person, knowing fully well the legal consequences of any of
his act or omission, does or refrain from doing that thing, his action or
omission should be taken to be willful unless it is shown that the act or
omission is due to mistake or inadvertence. The only defence of the
exporter in all these three sets of cases is that they have acted
contrary to the provisions firstly by converting D.P. terms to D.A.
terms insofar as the exports to Sierra Leone are concerned and by
agreeing not to take legal action in reference to M/s. Raxshire Limited,
London. The exporter has clearly contravened the provisions of Section
18(2) of the Act. In ARCOT EXPORTERS VS. DIRECTOR OF ENFORCEMENT [2001
(4) C.T.C. 609], this Court, in which one of us is a party, has taken
the view that the belated attempt on the part of the exporter by filing
suits after the notice by the Special Director of Enforcement is complete
by non-securing the foreign exchange. In that case also, no extension
was granted and therefore, there is a legal presumption subject to the
contrary being proved that the exporter had not taken reasonable steps to
receive or recover the amount, thereby contravening the provisions of
Section 18(2) of the Act. In K.L. PAVUNNY VS. ASSISTANT COLLECTOR
[1997 (3) S.C.C. 721], the Supreme Court held that a confession
statement, recorded by reason of statutory compulsion or given
voluntarily by the accused pursuant to his appearing against summons,
cannot be said to have been obtained by threat, inducement or promise and
therefore, is admissible in evidence. Even if the statement had been
retracted, if on facts it is found to be voluntary and truthful, it can
form the exclusive basis for conviction and it need not be corroborated
by independent evidence.
33. Section 68(1) of the Act says that where a person committing
a contravention of any of the provisions of the Act or Rules or a
direction or order made thereunder is a company, every person who, at the
time of the contravention was incharge of and who was responsible for the
conduct of the business of the company as well as the company shall be
deemed to be guilty of the contravention and shall be liable to be
proceeded against and punished accordingly. The proviso to the said
section says that such person is entitled to prove that the contravention
has taken place without his knowledge or that he exercised all due
diligence to prevent such contravention. The explanation to the said
proviso says that a company includes a firm or other association of
individuals. In this case, it is seen that the main person looking after
the export business of all the sister concerns was Sri Ravi Prakash. The
statement of Sri Rattan Kumar and the documents show that Sri Ravi
Prakash, who was the Managing Partner of S.R.C. Export Group of
Companies, was responsible for the affairs of the company. Even the
written submissions were made as submitted by Sri Ravi Prakash. The
Special Director has accepted that it is Ravi Prakash who was managing
the affairs of the group concern. Even as per Section 68, every person
who was incharge of and who was responsible to the company as well as the
company shall be deemed to be guilty of the contravention. Therefore,
the firm as well as the other partners also are not absolved of the
liabilities.
34. In the light of the above, we have no hesitation in holding
as follows :
(a) The exporters have violated the provisions of Section 18(2)
of the Act by changing the terms of the bill.
(b) The exporters had not taken all reasonable steps for
releasing the dues within the meaning of section 18(3) of the Act.
(c) The failure on the part of the exporters in not taking
reasonable steps within the prescribed period of six months which is
allowed by the R.B.I. will clearly amount to violation of the provisions
of Section 18(2) readwith Section 18(3) of the Act and that the exporters
have failed to prove their case beyond reasonable doubt.
(d) The statements given by Sri K.A. Sekar under Section 40 of
the Act can be relied upon and it is for the exporters to establish that
they have taken all reasonable steps for releasing the sale proceeds and
they have failed to discharge the burden.
(e) The Board has failed to apply the legal presumption available
under Section 59 of the Act in favour of the department, resulting in the
illegal and perverse finding on fact and on law.
(f) The payment made by one non-resident namely M/s. H.A. Farag
& Sons Limited, Banjul to M/s. Toufic Huballa, another non-resident, on
instructions of a resident without the permission from the R.B.I. would
amount to contravention of the provisions of Section 9(1)(a) of the Act,
since the said payment was made at the instance of the exporters.
35. It is seen that the exporter had been dragging on the
proceedings and prolonging even the hearing of the case for a number of
years. Their attempt to put the blame on the Reserve Bank of India and
their failure to submit the crucial documents required and their further
stand in not coming forward with the explanation cannot be appreciated.
36. For all the above reasons, we are inclined to allow the
appeals with exemplary costs. We record our appreciation for the efforts
taken by Mr. K. Kumar, Additional Central Government Standing Counsel
in placing before us the case effectively. The statements filed by the
appellants dated 6.3.2002 shall form part of this judgment.
37. All the above appeals are allowed with a cost of Rs.1,500/-
each. We direct that the interim orders, if any, passed pending disposal
of these appeals, shall stand vacated. The appellants are entitled to
proceed against the exporter in accordance with law and there would not
be any impediment in reference to any of the proceedings by virtue of the
orders in question.
Index : Yes (P.S.M.J.) (P.T.J.) Internet : Yes 08/04/2002 NOTE TO OFFICE : Issue by 10.4.2002. ab Sd/.. Assistant Registrar // TRUE COPY // Sub Assistant Registrar (C.S.) To The Director of Enforcement, Union of India, Enforcement Directorate, New Delhi-110 003. P. SHANMUGAM, J. and P. THANGAVEL, J. Judgment in C.M.A. Nos.1583 to 1590 of 1999 Delivered on 08/04/2002