Foreign exchange recovery under export contracts: no contravention where RBI-approved compromise secured substantial realisation and arbitration was unnecessary.

Liability under the Foreign Exchange Regulation Act, 1947 arose only where a person, without Reserve Bank permission, refrained from steps that would make foreign exchange unrecoverable in whole or in part. On the facts stated, the exporters had taken initial recovery steps, obtained RBI approval for the compromise, and realised more than 95% of the export value. The Board also found that arbitration would have caused unnecessary expense and that there was no mens rea. The failure to pursue arbitration therefore did not amount to prohibited short realisation of export proceeds, and the penalty order could not stand.

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Issues: Whether the appellants contravened sections 10(1) and 12(2) of the Foreign Exchange Regulation Act, 1947 by not pursuing arbitration and thereby causing short realisation of export proceeds.

Analysis: The liability under the Act arose only if the appellants, without the Reserve Bank of India's permission, refrained from taking steps that had the effect of making foreign exchange cease to be recoverable in whole or in part. On the facts found, the appellants had taken initial steps to secure recovery, had obtained the Reserve Bank's approval for the compromise, and had realised more than 95% of the export value. The Board itself found that they had followed the best possible course, that arbitration would have involved substantial expense and loss, and that there was no mens rea. In these circumstances, the failure to proceed with arbitration did not amount to the prohibited short realisation contemplated by the Act.

Conclusion: The appellants did not contravene sections 10(1) and 12(2) of the Foreign Exchange Regulation Act, 1947, and the penalty order could not stand.

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