2008 (7) TMI 1108 - AT - FEMA

Tribunal Upholds Penalties for Failure to Realize Export Proceeds; Affirms Vicarious Liability for Company Actions.

The Tribunal dismissed the appeals due to lack of merit, affirming the penalties imposed on the appellants for failing to realize outstanding export ... - Issues Involved:1. Failure to realize outstanding export proceeds.2. Legal obligations under Section 18(2) and 18(3) r/w Section 68(1) of FER Act 1973.3. Adequacy of efforts made by the appellants to recover export proceeds.4. Vicarious liability of individual appellants.5. Quantum of penalty imposed.Issue-wise Detailed Analysis:1. Failure to Realize Outstanding Export Proceeds:The appellants were penalized for failing to realize outstanding export proceeds, contravening Section 18(2) and 18(3) r/w Section 68(1) of the FER Act 1973. The Tribunal noted that despite the appellants' claims of pursuing recovery through various means, including correspondence and a civil suit in the U.S. District Court, they did not take sufficient steps to ensure realization of the export proceeds.2. Legal Obligations under Section 18(2) and 18(3) r/w Section 68(1) of FER Act 1973:The Tribunal emphasized the legal obligations under Section 18(2) and 18(3) of the FER Act, which mandate exporters to make reasonable efforts for repatriation of export proceeds. The Tribunal referred to the definition of 'reasonable' as per the Advanced Law Lexicon, highlighting that what is reasonable varies depending on the circumstances and must be determined based on the specific facts of each case.3. Adequacy of Efforts Made by the Appellants to Recover Export Proceeds:The Tribunal found that the appellants' efforts were insufficient. For instance, goods were exported to various buyers between December 1996 and September 1997, but the appellants did not take timely or adequate actions to recover the proceeds. The Tribunal noted that mere filing of a suit long after the prescribed period and lack of follow-up actions were not enough to displace the adverse presumption under Section 18(3) of the Act.4. Vicarious Liability of Individual Appellants:The Tribunal addressed the contention that individual appellants should not be penalized without evidence of their responsibility for the company's conduct. The Tribunal referred to the Hon'ble Apex Court's rulings in S.M.S. Pharmaceuticals Ltd v. Neeta Bhalla and Everest Advertising Pvt. Ltd. v. State, emphasizing that vicarious liability requires showing that the individuals were in charge of and responsible for the company's business. The Tribunal found that the SCNs issued to the individual appellants sufficiently established their responsibility, and the appellants failed to demonstrate due diligence or lack of knowledge of the contravention.5. Quantum of Penalty Imposed:The Tribunal reviewed the penalty amounts imposed on the appellants and concluded that the penalties were neither harsh nor excessive considering the amount involved in the contravention. The Tribunal decided that no intervention was required regarding the penalty amounts.Conclusion:The appeals were dismissed for lack of merit. The Tribunal ordered that the amounts already deposited be appropriated towards the penalty, and the appellants were directed to deposit the balance penalty amount within 7 days from the receipt of the order. Failure to do so would entitle the respondent to recover the amount in accordance with the law.