2019 (6) TMI 636 - AT - FEMA

Appeals Allowed, Penalties Set Aside for FERA Violations

The Tribunal allowed the appeals, setting aside the impugned order and penalties imposed on the directors. It emphasized that contraventions under FERA ... Non-realization/short of foreign exchange received - Failure to realize export proceeds on exported goods - FEMA v/s FERA proceedings - contravention of provisions of section 7 & 8 of FEMA, 1999 read with regulation Nos. 8,9 & 13 of Foreign Exchange Management (Export o Goods and Services) Regulations, 2002 - Penalty imposed - HELD THAT:- Foreign Exchange Management Act, 1999 (‘FEMA’) was brought in to keep pace with the changing dynamics of the Indian economic polity repealed the Foreign Exchange Regulation Act, 1973 (‘FERA’) and came into force on 1-6-2000. Apart from removing criminal prosecution for non-compliance of foreign exchange norms, FEMA also introduced a sunset clause for taking notice of contraventions under FEMA. FEMA provides that no adjudicating authority shall take notice of any contravention under FERA two years after the coming into force of FEMA. In other words, it provided a window up to 31-05-2002 for the authorities under FEMA to take notice of contraventions under FERA. The export of goods had been made on 29h May, 2000 under GR No. 366158. The subject export was governed by the Foreign Exchange Regulation Act, 1973 and no proceedings under section 8 of the FEMA 1999 which came into force on 1st June 2000 could be applicable for the GR No. 366158 dated 29.05.2000. In BHUPENDRA V. SHAH VERSUS UNION OF INDIA & ORS. [2010 (3) TMI 20 - DELHI HIGH COURT] held show cause notice (SCN) issued after the sunset clause period of 31-05-2002 for alleged contravention of Section 7 & 8 of FEMA by an exporter in not realizing proceeds of export made in 1997- 98(pertaining to the FERA period. In order to invoke section 7 of FEMA, the ED will have to show that the party reached the time limits specified in FEM EGS Regulations. At the relevant point of time, FEMA was not a force and hence there could be no question of contravening the provisions of FEMA and if at all there was any contravention, it would only under FERA and the same had to be shown to have continued beyond the two year sunset period - the legislative intent was very clear in having a limited continuation of two years for contraventions under FERA - on reading of Section 49(4) [which is subject of section 49 (3)] the contravention under FERA had to be governed by the Provisions of FERA. Therefore the alleged contravention was one under FERA and by virtue of the sunset clause so there was no question of the contravention continuing after 31-5-2000. Decision under FERA but still valid under FEMA- In LIC VS Escorts Ltd.[1985 (12) TMI 289 - SUPREME COURT] wherein it has been held that RBI is empowered to grant ex-post permission under Section 18(2). Thus, mere non-realisation of export proceeds will not amount to contravention of Section 18(2) of FERA, unless RBI refused permission to write off the receivables or to extend the period. It is rightly submitted on behalf of appellants that according to the decision of Hon’ble Apex Court LIFE INSURANCE CORPN. OF INDIA VERSUS ESCORTS LTD. [1985 (12) TMI 289 - SUPREME COURT] initiation of enquiry against the noticee company by the Directorate of Enforcement for same and identical matter pending before their banker for last 8 years is a long delay. No doubt, there is no prescribed period stipulated but at the same time, it is settled law that if the party has a reasonable case on merit, the issue of delay cannot be considered while deciding the matter. In the light of above and for the reasons stated, the appeals are allowed by setting–aside the impugned order. All appeals and pending application are disposed of. Issues Involved:1. Applicability of Foreign Exchange Management Act (FEMA) vs. Foreign Exchange Regulation Act (FERA)2. Realization of export proceeds3. Validity of penalty imposed on directors4. Delay in initiation of proceedingsIssue-wise Detailed Analysis:1. Applicability of Foreign Exchange Management Act (FEMA) vs. Foreign Exchange Regulation Act (FERA):The Tribunal addressed the applicability of FEMA and FERA, noting that the export in question occurred on 29.05.2000, just before FEMA came into force on 01.06.2000. According to Section 49 of FEMA, contraventions under FERA should be taken notice of within two years from the commencement of FEMA, i.e., by 31.05.2002. The Tribunal cited precedents, including Bhupendra V Shah vs. Union of India, which held that contraventions under FERA could not be pursued under FEMA after the sunset period.2. Realization of Export Proceeds:The Tribunal reviewed the facts and submissions, noting that the appellant exported goods worth US$ 29,100 but failed to realize US$ 6,558.64. The appellant contended that the shortfall was due to trade discounts and expenses incurred by the buyer, which were communicated to their bank, Dena Bank. The Tribunal found that the appellant had taken reasonable steps to realize the proceeds and had informed the bank about the settlement and requested the shortfall to be treated as a trade discount.3. Validity of Penalty Imposed on Directors:The Tribunal examined the penalties imposed on the directors for contravention of Sections 7 and 8 of FEMA, along with relevant regulations. The appellant argued that the penalties were unjustified as the realization shortfall was due to genuine commercial reasons and not willful default. The Tribunal agreed with the appellant, noting that the directors had taken reasonable steps to realize the export proceeds and that the penalty was not warranted.4. Delay in Initiation of Proceedings:The Tribunal highlighted the significant delay in initiating proceedings, with the show cause notice issued in 2012 for an export made in 2000. The Tribunal emphasized that while there is no prescribed period for initiating such proceedings, the delay was unreasonable and prejudicial to the appellant. The Tribunal referenced the Supreme Court's decision in LIC vs. Escorts Ltd., which underscored the importance of timely action in such matters.Conclusion:The Tribunal allowed the appeals, setting aside the impugned order and the penalties imposed on the directors. It emphasized that the contraventions, if any, were under FERA and could not be pursued under FEMA after the sunset period. The Tribunal ordered the refund of the pre-deposit amount to the appellants and disposed of all pending applications.