2001 (7) TMI 1333 - AT - FEMA

Tribunal Reduces Penalty for Export Proceeds Violation, Citing Bona Fide Intentions and Commercial Prudence.

The Appellate Tribunal addressed issues of unauthorized representation and ex parte proceedings, ultimately modifying the penalty imposed for contravening ... - Issues: (i) Whether the appellant firm contravened provisions of the Foreign Exchange Regulation Act, 1973 by allowing adjustment of export proceeds without prior permission of the Reserve Bank of India; (ii) Whether and to what extent the penalty imposed for the contravention should be sustained or modified.Issue (i): Whether the appellant firm contravened provisions of the Foreign Exchange Regulation Act, 1973 by allowing adjustment of export proceeds without prior permission of the Reserve Bank of India.Analysis: The regulatory framework requires realisation of full export proceeds unless general or special permission is obtained from the Reserve Bank of India for adjustments. The appellate record shows that the appellant allowed the buyer to adjust a balance against a claim without any RBI permission. The factual findings establish that the adjustment occurred and that the necessary prior permission from the RBI was not sought. The Tribunal proceeded on the appellants' pleadings and material on record to determine compliance with statutory requirements.Conclusion: The appellant firm contravened the provisions of the Foreign Exchange Regulation Act, 1973 by permitting adjustment of export proceeds without obtaining prior permission from the Reserve Bank of India.Issue (ii): Whether and to what extent the penalty imposed for the contravention should be sustained or modified.Analysis: Penalty assessment under the statute allows consideration of the extent of contravention and mitigating circumstances, including bona fide conduct and the monetary magnitude involved. The amount unremitted was relatively small and the export proceeds were substantially realised. The Tribunal assessed the mitigating effect of bona fide commercial considerations and reduced the penalty accordingly, while also setting aside the penalty on the managing partner in light of the circumstances.Conclusion: The penalty imposed in the impugned order is excessive; it is modified by reducing the consolidated penalty on the appellant firm and by imposing no penalty on the managing partner.Final Conclusion: The appeal is partly allowed by upholding the finding of contravention but reducing the monetary penalty imposed on the appellant firm and quashing the penalty on the managing partner, resulting in a modified disposal of the impugned order.Ratio Decidendi: Where export proceeds are adjusted in favour of a buyer, prior permission from the Reserve Bank of India is required; absence of such permission constitutes a contravention under the Foreign Exchange Regulation Act, 1973, but the quantum of penalty may be mitigated based on bona fide conduct and the smallness of the amount involved.