Realisation of Export proceeds - Requisite and Reasonable steps required

PJ/Case Laws/2011-12/1471

Case: Sri Renuga Soft-X Towels v/s Dy. DIR., DTE. Of Enforcement, Chennai

Citation: 2011 (267) E.L.T. 475 (Mad.)

Issue:- Whether any requisite and reasonable steps had been taken by the appellant to recover the export proceeds from the overseas buyers?

Brief Facts:- Appellant, an exporter of cotton and cotton products had exported the products through its agent in UAE to France, and earned considerable foreign exchange on the same but it failed to realize the foreign exchange proceeds on the same owing to insolvency of the company based in France.

The appellant was charged with contravening the provisions of Section 18(2) read with Section 18(3) of erstwhile FERA, 1973. Show cause notice was issued alleging violation of provisions of FERA, 1973 for non-realising the outstanding export proceeds within the stipulated time. The specific charge against the appellant was that for the non-repatriating the outstanding proceeds by way of foreign exchange to the country within the stipulated period.

Revenue held that the appellant and its Director were guilty of the charges and levied a penalty of Rs.3,00,000/- on the company and that Rs.1,00,000/- on the Director of the appellant company under section 50 of the FERA.

Aggrieved, appellant had preferred appeals before the Appellate Tribunal for Foreign Exchange, New Delhi. But the Appellate Tribunal, by its final order dated 30.10.2007 dismissed the appeals and confirmed the adjudication order passed by the Deputy Director.

Challenging the same, the appellant filed appeals before the High Court.

Appellant’s Contention:- Appellant submitted that the non–repatriation of export proceeds was neither wilful nor deliberate.

Appellant submitted that the final buyer SA Arguel, France did not take delivery of the goods. Therefore, the goods exported to SA Arguel, France, was diverted to Betty Blanc. France. But, M/sBetty Blanc, France, did not pay any amount for the consignment diverted to them either to SA Arguel, France or to the appellant. When the appellant contacted through Agent-Commercial legal representative of the company, they were informed them that M/s Betty Blanc, had become an insolvent. Even thereafter, the appellant had sent several communications to their Agent-Commercial to recover the export proceeds from the foreign buyer and after contacting the Legal Representative of the Company through various communications, finally the Agent-Commercial sent a reply to the appellant stating that he had done the maximum possible under French Commercial Law to recover the amount and also through the income tax department and thereby impliedly expressed his inability to recover the export proceeds. Thus, the appellant, by producing various correspondences between the appellant, their Agent-Commercial and the Legal Representative of the company, submitted that the appellant had taken all reasonable steps to realise the export proceeds and in spite of that, they did not realise the same.

Since the foreign buyer has become insolvent, no useful purpose would be served by initiating legal proceedings against them and for filing a suit would amount to spending good money to recover the bad due. Therefore, the appellant had not taken steps to get extension from the Reserve Bank of India.

The appellant has also relied on the meaning of the word "Reasonable" given in 'LAW LEXICON'.

Respondent’s Contention:- Revenue submitted that under Rule 8 of FERA Rules, full export value of the goods exported should be realised within a period of six months from the date of shipment of the goods. If the exporter is not in a position to realise the goods, he has to obtain permission from the Reserve Bank, who is the only authority to extend the period; but in the instant case, the appellant had not approached the Reserve Bank for extension of time. Under such circumstances, it cannot be construed that the appellant had taken all reasonable steps to secure the export proceeds. Therefore, there is a violation of the provisions of Sections 18(2) read with Section 18(3) of the FERA and as such, no fault could be found in the order passed by the respondent.

Reasoning of Judgment:- The High Court held that various correspondences exchanged between the parties show that they had taken requisite steps to recover the amount and the non-approaching of the Reserve Bank for extension of time, does not mean that they had not taken effective steps.

The High Court noted correspondence exchanged between the parties and held that the appellant was continuously in touch with their Agent-Commercial at France to take steps to recover the amount and finally the Agent-Commercial expressed his inability to recover the amount. In this regard, the appellant did not take any further steps. Now, according to the appellant, further steps such as filing a suit at France, contacting the Indian Embassy at foreign countries, etc. would amount to expending huge amount of good money for bad dues. Therefore, based on the correspondence between the appellant and their Agent-Commercial, the authority below ought to have accepted the case of the appellant that they had taken the reasonable steps.

The High Court held that the failure to approach the Reserve Bank for the extension does not amount that the appellant had totally failed to take any reasonable steps and it has to be decided based on the evidence produced by the appellant on their side and not based on the ground of failure to obtain extension from the Reserve Bank of India.

Relying upon the meaning of expression “reasonable” in the case of M/s Shyamlal Pragnarain v. Commissioner of Income tax U.P., Lucknow [A.I.R. 1955 All. 299] and in Teshingbhai Ishwarlal v. Emperor [A.I.R. 1950 Bom. 363] it was held that any amount of correspondence sent by the appellant to the foreign buyers or to the Legal Representative or to the Agent-Commercial, is only an internal correspondence. Unless the appellant approaches the Reserve Bank to get the extension for recovery of the export proceeds and unless the Reserve Bank of India on its adjudication, waives the recovery of the proceeds, it cannot be construed that the appellant had taken all reasonable steps within the terms of the relevant Act, especially when the object of FERA is not to waste the foreign exchange resources and to utilise the same to advance the national interest. Further more, no substantial question of law is involved in this appeal. Reference was made to the decision relied on by the respondent in the case reported in Raghavan Nair versus Deputy Director, Enforcement Directorate [CFC (Ker) 83].

No infirmity found in the order passed by the respondent. The letter correspondence between the appellant and their foreign buyers is not sufficient enough to prove the reasonableness of the appellant to secure the foreign proceeds within the purview of the Act. Therefore, appellant’s contention cannot be accepted.

Decision:- Appeal dismissed.

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