2018 (10) TMI 1420 - AT - FEMA

Tribunal Invalidates Penalty for FERA Offences Post Sunset Clause

Shri D.B. Deshpande Versus The Special Director Directorate of Enforcement, Mumbai

Shri D.B. Deshpande Versus The Special Director Directorate of Enforcement, Mumbai - TMI Issues Involved:1. Validity of the Show Cause Notice (SCN) issued after the sunset clause of FERA.2. Jurisdiction of the Directorate under FEMA for offences committed during the FERA regime.3. Reasonableness of the penalty imposed on the appellant.4. Consideration of reasonable steps taken by the appellant to realize export proceeds.5. Arbitrary treatment among similarly situated exporters.6. Application of judicial precedents and principles of natural justice.Detailed Analysis:1. Validity of the Show Cause Notice (SCN) Issued After the Sunset Clause of FERA:The appellant argued that the SCN was issued on 5.10.2005, after the sunset clause following the repeal of FERA on 1.6.2002, which is impermissible under the law. The Tribunal noted that this issue was identical to the case of Bhupinder V. Shah, where the SCN was also issued after the sunset clause and was deemed invalid by the High Court of Delhi. Thus, the SCN issued in the present case was held to be null and void ab-initio.2. Jurisdiction of the Directorate under FEMA for Offences Committed During the FERA Regime:The respondent contended that the Directorate had jurisdiction under FEMA as the offence was continuing. However, the appellant countered this by referencing the Bhupinder V. Shah judgment, where it was held that no SCN could be issued under FEMA for offences completed during the FERA regime post the sunset clause. The Tribunal agreed with the appellant, noting that the judgment in Bhupinder V. Shah was binding and had attained finality.3. Reasonableness of the Penalty Imposed on the Appellant:The appellant argued that the penalty of Rs. 55,00,000 was unreasonable and imposed without considering the precarious financial condition and the reasonable steps taken to realize the export proceeds. The Tribunal found that the adjudicating authority had imposed the penalty arbitrarily without proper consideration of the appellant’s submissions and the financial difficulties faced by the company.4. Consideration of Reasonable Steps Taken by the Appellant to Realize Export Proceeds:The appellant detailed the exhaustive efforts made to recover the export proceeds, including issues faced with buyers in different countries, such as liquidation of companies, quota restrictions, and buyers absconding. The Tribunal noted that these efforts were not adequately considered by the adjudicating authority. The appellant’s situation was similar to that in the case of Modern Terry Towels Ltd., where no penalty was imposed due to similar circumstances.5. Arbitrary Treatment Among Similarly Situated Exporters:The appellant highlighted that other exporters, such as Modern Terry Towels Ltd., were granted write-offs by the RBI for similar reasons, but the appellant’s request was still pending. The Tribunal found this to be arbitrary and discriminatory, as similarly situated exporters should be treated equally under the law.6. Application of Judicial Precedents and Principles of Natural Justice:The appellant argued that the impugned order was passed in violation of the principles of natural justice and without application of mind, as it did not consider the reasonable steps taken or the financial difficulties faced. The Tribunal agreed, noting that the order was passed after a considerable delay and without considering the appellant’s detailed submissions. The judgment in Bhupinder V. Shah was found to be directly applicable and binding, and the impugned order was held to be in violation of the principles of natural justice.Conclusion:The Tribunal concluded that the SCN issued under FEMA for an offence completed during the FERA regime was null and void. The penalty imposed was found to be unreasonable and arbitrary, and the adjudicating authority failed to consider the reasonable steps taken by the appellant. The appeal was allowed, and the impugned order was set aside. No costs were awarded.