2001 (8) TMI 1460 - AT - FEMA

Tribunal Reduces Penalties Due to Lack of Evidence and Compassionate Grounds; Urges Appellants to Seek RBI Extensions.

Rajindra Industries Versus Deputy Director, Enforcement Directorate

Rajindra Industries Versus Deputy Director, Enforcement Directorate - TMI Issues Involved:1. Imposition of penalties on the appellant firm and its partner for non-realisation of export proceeds.2. Legality of imposing penalties on the firm after its dissolution.3. Responsibility of the partner under section 68(1) of the Foreign Exchange Regulation Act, 1973.4. Assessment of reasonable steps taken by the appellants for realisation of export proceeds.Issue-Wise Detailed Analysis:1. Imposition of Penalties on the Appellant Firm and its Partner:The appeal was against the adjudication order imposing penalties of Rs. 10 lakhs on the appellant firm and Rs. 5 lakhs on its partner for contravening sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973. The adjudicating authority found that the appellants did not take reasonable steps to realise export proceeds from shipments made during 1986-89, and there was no evidence of seeking an extension from RBI. The appellants attributed non-realisation to the Gulf war and the disappearance of buyers post-war, requesting a sympathetic view. However, the adjudicating authority noted that the appellants failed to produce documentary evidence to support their claims.2. Legality of Imposing Penalties on the Firm After Its Dissolution:The appellant's counsel argued that the firm dissolved by operation of law following a partner's death, thus it ceased to exist before the impugned order. The Tribunal, however, held that the firm and its partners remain liable for liabilities incurred before dissolution until satisfied as specified in the Act. This view was supported by an earlier order of the Tribunal and sections 25 and 45 of the Indian Partnership Act, which state that partners continue to be liable for acts done before dissolution.3. Responsibility of the Partner Under Section 68(1) of the Foreign Exchange Regulation Act, 1973:The Tribunal found no material evidence to hold Shri Gurbachan Singh responsible under section 68(1). The adjudicating authority failed to consider that Shri Raminder Bir Singh, who signed the GRIs, was in charge of the firm's affairs during the relevant period. Even though Gurbachan Singh was involved in some activities, it did not meet the legal requirements of section 68(1). Consequently, the penalty of Rs. 5 lakhs imposed on Gurbachan Singh was set aside.4. Assessment of Reasonable Steps Taken by the Appellants for Realisation of Export Proceeds:The Tribunal noted that the exports made in 1986-89 were still outstanding. The appellants failed to provide a chronological list of steps taken for each GRI and made general submissions about the Gulf war. The Tribunal found that the appellants did not substantiate their claim of taking all reasonable steps, such as applying to RBI for extensions or writing off unrealisable proceeds. The Tribunal referred to the RBI's memorandum and the Madras High Court judgment in Samuel & Co. v. Foreign Exchange Regulation Appellate Board, emphasizing the necessity of seeking RBI's permission timely.The Tribunal acknowledged the appellants' plea for a sympathetic view due to a massive fire in the factory and health issues of the partners. Referring to a precedent where penalties were reduced due to similar compassionate grounds, the Tribunal reduced the penalty on the firm from Rs. 10 lakhs to Rs. 1 lakh.Conclusion:- The appeal No. 123/2001 concerning the penalty on Shri Gurbachan Singh was allowed, and the penalty was set aside.- The appeal No. 122/2001 concerning the penalty on the appellant firm was partly allowed, with the penalty reduced from Rs. 10 lakhs to Rs. 1 lakh.