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Union of India, rep. by v. M/s. SRC Exports Pvt. Ltd. - C.M.A. Nos.1583 to 1590 of 1999 and C.M.P. Nos.18424 to 18431 of 1999  RD-TN 230 (8 April 2002)
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 08/04/2002
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.
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.
// TRUE COPY //
Sub Assistant Registrar (C.S.)
The Director of Enforcement,
Union of India,
New Delhi-110 003.
P. SHANMUGAM, J.
P. THANGAVEL, J.
C.M.A. Nos.1583 to 1590
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