Export proceeds under FERA: short-shipment exclusions, limited contravention for balance dues, and no vicarious penalty absent wilful default.

In proceedings for non-realisation of export proceeds under FERA, the obligation to realise payment applies only to goods actually sold and cleared by the foreign buyer. Amounts attributable to short-shipment and destruction of goods were excluded because the department did not prove that those consignments had been cleared. For the balance consignments that were admittedly cleared, the statutory presumption under section 18(3) operated, and contravention was confined to the outstanding amount. Penalty on the Managing Director was not justified in the absence of deliberate default, personal interest, or wilful neglect. The company's penalty was treated as excessive and reduced to a token amount.

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Issues: (i) Whether the amounts attributable to short-shipment and destruction of goods were liable to be excluded while determining contravention of section 18(2) of the Foreign Exchange Regulation Act, 1973, and whether the remaining outstanding amount alone could sustain the finding of contravention; (ii) Whether penalty under section 68(1) of the Foreign Exchange Regulation Act, 1973 was justified against the Managing Director; (iii) What quantum of penalty was warranted against the company.

Issue (i): Whether the amounts attributable to short-shipment and destruction of goods were liable to be excluded while determining contravention of section 18(2) of the Foreign Exchange Regulation Act, 1973, and whether the remaining outstanding amount alone could sustain the finding of contravention.

Analysis: The obligation to realise export proceeds arises only in respect of goods actually sold and cleared by the foreign buyer. The evidence on record showed short-shipment in some consignments and contemporaneous material supporting destruction of certain goods. The department did not establish, by proper evidence, that those consignments had been cleared by the foreign buyer so as to attract the statutory obligation. However, in respect of the balance consignments that were admittedly cleared, the presumption under section 18(3) operated and the appellants did not fully rebut the contravention.

Conclusion: The exclusion of short-shipment and destroyed consignments was upheld, and the finding of contravention was confined to the remaining outstanding amount only.

Issue (ii): Whether penalty under section 68(1) of the Foreign Exchange Regulation Act, 1973 was justified against the Managing Director.

Analysis: The record did not show any deliberate attempt, personal interest, or wilful neglect on the part of the Managing Director to keep the foreign exchange abroad. The continued realisation of a substantial part of the export proceeds and the absence of evidence of intentional default negatived invocation of vicarious liability under section 68(1).

Conclusion: The penalty imposed on the Managing Director was not justified and was set aside.

Issue (iii): What quantum of penalty was warranted against the company.

Analysis: Although the company had contravened section 18(2) in respect of the remaining outstanding amount, the surrounding circumstances, the partial realisation, the efforts made, and the absence of deliberate misconduct constituted mitigating factors. A deterrent penalty was held to be excessive, and only a token penalty was considered appropriate.

Conclusion: The company's penalty was reduced to Rs. 2,50,000.

Final Conclusion: The company remained liable only for the restricted contravention relating to the balance outstanding export proceeds, while the managing director was exonerated and the penalty was substantially reduced.

Ratio Decidendi: In proceedings for non-realisation of export proceeds, the department must prove that the consignments were actually cleared so as to create the obligation to realise payment, and absence of wilful neglect or deliberate default precludes penalty on a managing director under vicarious liability provisions.

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