Reasonable steps to recover export proceeds can defeat FERA contravention where documentary evidence supports persistent follow-up.
Under the Foreign Exchange Regulation Act, exporter liability for non-realisation of export proceeds arises only where all reasonable steps to recover payment were not taken; sustained correspondence with buyers, banks and government agencies, together with documentary proof of non-delivery, partial local-currency payment and pursuit of legal remedies, may rebut contravention under section 18(2). Penalties linked to section 68(1) cannot survive where the person proceeded against was not the person in charge of business, and findings under section 9(1)(a) and section 9(1)(c) must rest on the actual prohibited act and a legally effective agreement, subject to the implied requirement of RBI permission under section 47(2).
Issues: (i) Whether the appellants were liable for contravention of section 18(2) of the Foreign Exchange Regulation Act, 1973 for non-realisation of export proceeds when the evidence showed that reasonable steps had been taken to recover the amounts. (ii) Whether the penalties under section 68(1) of the Foreign Exchange Regulation Act, 1973 and the findings under section 9(1)(a), section 9(1)(c) and section 47(2) of the Foreign Exchange Regulation Act, 1973 could be sustained on the facts and the documents on record.
Issue (i): Whether the appellants were liable for contravention of section 18(2) of the Foreign Exchange Regulation Act, 1973 for non-realisation of export proceeds when the evidence showed that reasonable steps had been taken to recover the amounts.
Analysis: Liability under section 18(2) depends not on the mere fact that export proceeds remain unrealised, but on whether the exporter failed to take all reasonable steps to receive or recover payment. The record showed sustained correspondence with buyers, banks, the Reserve Bank of India, correspondent banks and governmental agencies, together with documentary support that goods were in several cases not delivered, that some payments had already been made in local currency and placed in the pipeline system, and that the appellants had pursued legal and administrative remedies where feasible. In the Raxshire matter, the appellants sought permission for legal action promptly, but the request remained pending for years before liquidation occurred. In the Sierra Leone matters, the evidence showed that the foreign buyer had paid the relevant amounts into the local banking system and that externalisation depended on governmental release of foreign exchange. In the Monrovia matters, certificates of short landing, the suit against insurers, and correspondence regarding re-shipment established non-delivery and persistent follow-up. The Tribunal found that the adjudicating authority had ignored material documents and had proceeded on erroneous factual assumptions.
Conclusion: The finding of contravention of section 18(2) could not be sustained, and the penalties based on that finding were set aside.
Issue (ii): Whether the penalties under section 68(1) of the Foreign Exchange Regulation Act, 1973 and the findings under section 9(1)(a), section 9(1)(c) and section 47(2) of the Foreign Exchange Regulation Act, 1973 could be sustained on the facts and the documents on record.
Analysis: The finding against the partner proceeded on section 68(1), but the adjudicating authority had itself found that only the person in charge of business could be proceeded against, so the penalty on the other partner could not stand. As to section 9(1)(a), the alleged payment was made by a non-resident through another non-resident and did not constitute the prohibited act attributed to the appellant. As to section 9(1)(c), the alleged acknowledgement or agreement did not create an enforceable right in the manner required by the provision, no payment had been made pursuant to it, and in any event section 47(2) meant that any such agreement was subject to RBI permission as an implied condition. The Tribunal also held that the material relied on by the department, including the bank officer's statement, could not override the documentary evidence showing the true position.
Conclusion: The findings under section 68(1), section 9(1)(a) and section 9(1)(c) could not be sustained, and the related penalties were deleted.
Final Conclusion: The common adjudication order was set aside in toto and all the appeals were allowed.
Ratio Decidendi: An exporter is not guilty under section 18(2) unless it is shown that he failed to take all reasonable steps to recover export proceeds, and a purported liability or agreement does not attract penal consequences under section 9(1)(c) where it is contingent on RBI permission by operation of law.
TaxTMI 
AI Drafter ✕
TaxTMI 
