Reasonable steps to recover export proceeds displaced the presumption of contravention and defeated consequential penalties.

Filing a civil suit against the foreign buyers and bank was treated as the only effective reasonable step available to secure export proceeds, so the presumption of contravention under section 18(3) of the Foreign Exchange Regulation Act, 1973 stood rebutted and no breach under section 18(2) was made out. The adjudication was also held premature because RBI had already granted extension of time for realisation, and the authority could not assume the absence of any further extension while the recovery proceedings were pending. Penalties on the partner-appellants fell with the principal finding, as they were purely consequential and lacked an independent basis once the main contravention failed.

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Issues: (i) whether filing of the civil suit by the exporter constituted the effective and reasonable step required to rebut the presumption under section 18(3) and avoid contravention under section 18(2) of the Foreign Exchange Regulation Act, 1973; (ii) whether the adjudication proceedings were premature in view of the extension of time granted by the RBI for realisation of export proceeds; (iii) whether the penalty imposed on the partner-appellants could survive if the principal appellant was not guilty of contravention.

Issue (i): whether filing of the civil suit by the exporter constituted the effective and reasonable step required to rebut the presumption under section 18(3) and avoid contravention under section 18(2) of the Foreign Exchange Regulation Act, 1973.

Analysis: The filing of the suit against the foreign buyers and the foreign bank was treated as the only effective measure available in the circumstances for securing realisation of the export proceeds. Once that step was taken, the presumption under section 18(3) could not be invoked against the exporter, because the facts did not justify an inference that the exporter had failed to take reasonable action to secure payment within the prescribed period.

Conclusion: The first appellant was not guilty of contravention under section 18(2).

Issue (ii): whether the adjudication proceedings were premature in view of the extension of time granted by the RBI for realisation of export proceeds.

Analysis: The RBI had granted extension of time, and the existence of a pending civil suit meant that further extension could arise only after expiry of the previous extension. The adjudicating authority was not justified in presuming absence of further extension and, in any event, the core question remained whether reasonable steps had been taken by the exporter.

Conclusion: The adjudication proceedings were premature and could not sustain the finding of contravention.

Issue (iii): whether the penalty imposed on the partner-appellants could survive if the principal appellant was not guilty of contravention.

Analysis: The penalties on the partner-appellants were entirely consequential on the finding of contravention against the principal appellant. Once that finding failed, there was no independent basis for penal action against the partners in their capacity as such.

Conclusion: The penalties on the partner-appellants could not be sustained.

Final Conclusion: The impugned adjudication order was set aside in its entirety, and no penalty survived against any appellant.

Ratio Decidendi: Where an exporter has taken the only effective reasonable step available for recovery of export proceeds, the statutory presumption of contravention is displaced, and punitive action for non-realisation cannot stand on a premature assumption that further extension or recovery measures were unavailable.

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