S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
1
IN THE HIGH COURT OF JUDICATUARE FOR RAJASTHAN AT
JODHPUR.
JUDGMENT
(1) S.B. Civil Misc. Appeal No. 161/2008
Smt. Nazneen vs. The Director of
Enforcement & anr.
(2) S.B. Civil Misc. Appeal No. 180/2008
Abas Ali vs. The Director of
Enforcement & anr.
(3) S.B. Civil Misc. Appeal No. 182/2008
Taiyabi Khilona vs. The Director of
Store Enforcement & anr.
under Section 54 of Foreign Exchange
Regulation Act, 1973 read with Section 35 of
Foreign Exchange Management Act, 1999 against
the judgment and order dated 21.11.2007
passed by the learned Appellate Tribunal for
Foreign Exchange in Appeals No.73/05, 72/05
and 71/05 respectively.
Date of Judgment: September 22, 2008.
PRESENT
HON'BLE MR. PRAKASH TATIA, J.
REPORTABLE
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
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Mr. Dinesh Mehta for the appellants.
Mr. V.K. Mathur for the respondents.
BY THE COURT:
These three appeals have been filed under Section 54 of the
Foreign Exchange Regulation Act, 1973 ( for short ‘the Act of 1973’)
read with Section 35 of the Foreign Exchange Management Act,
1999( for short ‘the Act of 1999’), by M/s Taiyabi Khilona Store and
its two partners, being aggrieved against the judgment and order
dated 21.11.2007 passed by the Appellate Tribunal for Foreign
Exchange in Appeal Nos.71/05, 72/05 and 73/05. These three
appeals have been preferred because of the reason that the
appellant-Firm and its partners have been held guilty for violation
of the provisions of Section 18(3) of the Act of 1973 and penalty of
Rs.1,00,000/- has been imposed upon the Firm and its two partners
separately.
Brief facts of the case are that M/s Taiyabi Khilona Store, a
partnership firm having its two partners Abas Ali and Smt. Nazneen
exported goods through its courier M/s Container Movement
(Bombay Transport Private Limited) to its buyer M/s PAK Britannnia
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
3
Limited, London (England). The said goods were worth £ 16553.
According to the appellants, the document relating to the said
export work sent to the Bank in London on 6.2.1996 for collection.
The bill in this regard was drawn on D.P. Basis, according to which
the buyer can retire the documents by making payment to bank on
reaching of the consignment at its destination. However, the buyer
did not take the delivery of the goods and according to the
appellant, the appellant made his all efforts to recover the sale
proceeds. Since the buyer did not take the delivery of goods,
therefore, the authorities at London confiscated the goods at
London. In view of the above, according to the appellant, the sale
was not affected as the goods were not taken by the buyer and for
constituting a sale, it is necessary that seller sales the goods to the
buyer and buyer receives the goods. Since the goods were
auctioned by the authorities at London by exercising statutory
power, therefore, it was not a sale of goods at all and, therefore,
the authorities committed serious error of law by punishing the
appellants with the penalty as mentioned above under the
provisions of Section 50 of the Act of 1973.
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Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
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It is also submitted that penalty cannot be imposed upon a
person who made all bonafide efforts to realise the sale
consideration. According to the learned counsel for the appellants,
the appellants made their all efforts which is evident by the
various documents which have been placed by the appellants in
these appeals, which according to the learned counsel for the
appellants, were also before the authorities below, which clearly
shows that the appellants made all serious and bonafide efforts for
recovery of the amount with full intention to brought the foreign
currency within the India.
The learned counsel for the appellants lastly contended that
if it is held that the appellant-Firm was guilty under Section 50 and
was liable to be penalized for its fault then the authorities have
committed serious error of law by imposing penalty upon the Firm
as well as upon the partners. According to the learned counsel for
the appellants, the Firm is a compodium of the individual and is
not an entity akin to company which can have its own assets and
liability irrespective of the assets liability of its Director. In
addition to above, according to the learned counsel for the
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
5
appellants even if it is held that the any of the appellants, partner
of the firm could have been held responsible for conduct of the
business of the Firm then there is no finding that any of the
partners himself was responsible for and was incharge of the
activities of the Firm and because of lapse of that partners, the
foreign currency has not reached to India.
The learned counsel for the respondents vehemently
submitted that the appeal under Section 54 of the Act of 1973 lies
only on the question of law and in this case, only the question of
fact is involved and that the appellant did not make any effort for
bringing within the territory of India the foreign currency which is
the consideration for the goods sent to the foreign country,
therefore, this Court may not interfere with the orders which have
been passed by the two authorities after carefully looking into the
material placed by the appellants. It is also submitted that the
explanation appended to Section 68 of the Act of 1973 very clearly
provides that the Firm is also included in the definition of the
Company under the provisions of the Act of 1973 and, therefore,
penalty can be iimposed against the Firm as well as against firm’s s
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
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partners separately. It is also submitted that the authorities have
found that the partners were responsible for the business of the
firm and further it is submitted that even if it has not been said so
in the impugned orders even then the partners are liable for the
penalty and they are supposed to show that they were not the
incharge of the firm.
I considered the submissions of the learned counsel for the
parties and perused the relevant provisions of law.
Section 18(3) of the Act of 1973 is as under:-
“18(3) Where in relation to any goods to which a
notification under cl. (a) of sub-section (1) applies the
prescribed period has expired and payment therefor
has not been made as aforesaid, it shall be presumed,
unless the contrary is proved by the person who has
sold or is entitled to sell the goods or to procure the
sale thereof, that such person has not taken all
reasonable steps to receive or recover the payment for
the goods as aforesaid and he shall accordingly be
presumed to have contravened the provisions of sub-
section (2).”
The above section clearly provides that where in relation to
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
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any goods to which a notification under cl. (a) of sub-section (1)
applies the prescribed period has expired and payment therefor
has not been made as aforesaid, that is, as mentioned in the
proceeding section, then the law presumes that a person has not
taken all reasonable steps to receive or recover the payment for
the goods . There is further presumption that because of that such
person has contravened the provisions of sub-section (3) of Section
18 of the Act of 1973. The person referred in sub-section (3) of
Section 18 are (1) the person who has sold or (2) is entitled to sell
the goods and (3) entitled to procure the sale thereof. These
three categories of persons have been mentioned in sub-section (3)
of Section 18 of the Act of 1973 and that makes it very clear that a
person who has sold the goods is liable and required to prove that
he bonafidely made efforts for bringing the foreign currency,
second is the person who is entitled to sell the goods and third is
the person who is entitled to procure the sale proceeds thereof.
For the sake of argument, if it is presumed that sale is not
completed with the delivery of the goods to the buyer then the
appellants in the facts of the case is the firm and its parners are
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
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the persons who were authoriesed to sell the goods and also could
have procured the sale price. Therefore, where buyer has not
received the delivery of the goods but the goods have been
transported to the foreign country then it is as per the the Act of
1973, it is duty of such exporter to bring the money (the foreign
currency) within the Indian territory. The learned counsel for the
appellants vehemently submitted that the appellants have not
gained any thing in this transaction and in fact suffered due to of
the fault of the buyer and in fact he suffered loss. It is immaterial
whether the seller gained from the transaction or suffered loss in
the transaction. It is not a tax on income. It is also immaterial
whether in fact he received the sale consideration or not, because
of the reason that the provisions of Section 18 clearly provides that
seller is required to show his efforts for brining within the territory
of India the foreign currency for export of goods from the India.
The provisions referred are not for the benefit of the person who
has sold or who made efforts to sell the goods out side India
because of the reason that for his own property, every citizen can
have its own discretion and may waive his entire sale consideration
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
9
but that cannot exonerate the seller from having liability for not
bringing within the territory of India the foreign currency for the
goods which he exported. In view of the above reason, I do not
find any merit in the contention of the learned counsel for the
appellants that since the buyer has not received the value of the
goods, therefore, the sale is not complete and, therefore, the
penalty cannot be imposed upon the appellant-Firm.
So far as the penalty upon the partners of the firm are
concerned, it is abundantly clear from the explanation appended
to Section 68 that by virtue of deeming clauses made by the
proviso to Section 68 wherever reference of Company has been
given in Section 68 of the Act of 1973, the firm is also to be dealt
with in the same manner as any Company by virtue of explanation
(1) to Section 68 of the Act of 1973. The firm’s partners can be
held liable for the mischief committed during the course of
business in the name of the firm who are incharge and are
responsible for the conduct of the business of the company. There
is lot of difference between work of company and company’s status
and the liabilities and responsibilities as compared to status and
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
10
liabilities of the of the partners of the firm. It is also true that
there may be sleeping partners and some passive partners and
some active partners. Because of this fact only, it appears that the
provisions applicable generally for the company for determination
of the liability for commission of offence, have been made
applicable to the firm by making specific provisions, i.e.,
explanation (1) to Section 68 of the Act of 1973. In view of the
above reasons, the firm’s partners who are responsible for the
conduct of the business and were responsible and incharge at the
relevant time, can be personally held liable. In this case, the firm
was found guilty and this cannot be disputed in view of the fact
that mere writing one after another letters to the buyer by the
seller is not a sufficient and can not be treated bonafide effort for
recovery of the sale price by the exporter and, therefore, the
firm’s liability is upheld.
However, so far as liability of the partners is concerned, it
will be worthwhile to mention here that one of the partners is
male and another is female. There is a reference of mail partner
Abas Ali’s ailment in the order passed by the Assistant Director of
S.B.Civil Misc. Appeal No.161/2008
Smt. Nazneen vs. The Director of Enforcement & anr
& two connected appeals..
11
the Enforcement Department of Government of India and because
of that, time was sought for filing reply. Then in that situation, it
is difficult to presume that the another partner Smt. Nazneen was
the person responsible for the business and was incharge of the
firm’s affairs at the relevant time. Then in that situation, in
absence of any specific finding that Abas Ali, partner of the firm,
who was also sick, was fit and was doing the business and was
incharge for the conduct of the entire affairs of the firm. The
order passed by the Assistant Director, Enforcement Department of
the Government of India dated 30.11.2004 as well as the appellate
order dated 21.11.2007 qua the individual partner, cannot be
sustained.
In view of the above, the S.B. Civil Misc. Appeal No.182/2008
filed by appellant Taiyabi Khilona Store is dismissed, whereas
S.B.Civil Misc. Appeal No. 161/08 filed by appellant Smt. Nazneen
and S.B.Civil Misc. Appeal No.182/2008 filed by appellant Abas Ali
are partly allowed and the penalty against these two partners are
set aside.
(PAKASH TATIA),J.
mlt