Fair adjudication and vicarious liability under FERA require notice, proof of receipt, and company contravention first.

Rule 3(3) of the Adjudication Proceedings and Appeal Rules, 1974 requires the Adjudicating Officer to consider the noticee's reply before deciding whether adjudication should proceed; where no real opportunity to answer the show-cause notice is given, the proceeding is vitiated. Section 18(2) of FERA, 1973 was treated as requiring proof that the foreign buyer received the goods before liability for non-realisation of export proceeds could be pursued, and the exporter's conduct and prudent steps had to be assessed on the facts. Under Section 68(1), vicarious penalty on a director could not be imposed unless the company's contravention was first established and reasons were recorded for the director's liability.

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Issues: (i) Whether the adjudication proceedings were validly commenced and conducted in accordance with Rule 3(3) of the Adjudication Proceedings and Appeal Rules, 1974, and whether the appellant was afforded a reasonable opportunity to reply to the show-cause notice; (ii) whether liability under Section 18(2) of the Foreign Exchange Regulation Act, 1973 could be sustained in respect of exports where the goods were not received by the foreign buyer or where the exporter had taken steps expected of a prudent exporter; (iii) whether penalty could be imposed on the director under Section 68(1) of the Foreign Exchange Regulation Act, 1973 without first holding the company guilty and recording reasons for director liability.

Issue (i): Whether the adjudication proceedings were validly commenced and conducted in accordance with Rule 3(3) of the Adjudication Proceedings and Appeal Rules, 1974, and whether the appellant was afforded a reasonable opportunity to reply to the show-cause notice.

Analysis: The record showed that inspection of documents was completed on the same day on which the matter was taken up for personal hearing, leaving no real opportunity to submit a proper reply to the show-cause notice. Rule 3(3) required the Adjudicating Officer to consider the cause shown after service of notice and only thereafter decide whether adjudication proceedings should be held. That safeguard was not a formality, because an appropriate reply could show that the charge was not made out, or that proceedings were premature. The procedure adopted therefore fell short of the statutory requirement and the principles of fairness embedded in the rule.

Conclusion: The appellant was denied a proper opportunity as contemplated by Rule 3(3), and the adjudication was not validly conducted.

Issue (ii): Whether liability under Section 18(2) of the Foreign Exchange Regulation Act, 1973 could be sustained in respect of exports where the goods were not received by the foreign buyer or where the exporter had taken steps expected of a prudent exporter.

Analysis: For exports where the goods were not received by the foreign buyer, the obligation to realise export proceeds could not arise unless receipt of the goods under the export transaction was first established. In such cases, the Department had to prove receipt by the foreign buyer before proceeding under the provision. Where the goods were received but payment was not received, the exporter could avoid liability by showing that he had taken such steps as a prudent exporter would take in the facts of the case. The provision was treated as requiring a deliberate act or omission leading to non-realisation, and the surrounding facts, including the role of the bank and other authorities, had to be considered.

Conclusion: Liability under Section 18(2) could not be mechanically fastened without proof of receipt of goods by the foreign buyer and without considering the exporter's efforts and surrounding circumstances.

Issue (iii): Whether penalty could be imposed on the director under Section 68(1) of the Foreign Exchange Regulation Act, 1973 without first holding the company guilty and recording reasons for director liability.

Analysis: The imposition of penalty on a director under the vicarious liability provision required a prior finding that the company had contravened the law. Penalty could not be imposed on the director in isolation. Even where the company was found guilty, reasons had to be given showing why the director, who was in charge of the company's business, should also be penalised. The adjudication order did not proceed on that legal basis.

Conclusion: Penalty on the director under Section 68(1) could not be sustained on the basis adopted in the impugned order.

Final Conclusion: The impugned adjudication was set aside and the matter was sent back for a fresh decision in accordance with law and the stated safeguards.

Ratio Decidendi: Where the statutory procedure requires consideration of the noticee's reply before adjudication, denial of a real opportunity vitiates the proceedings; and liability for non-realisation of export proceeds or vicarious penalty must be founded on the specific statutory preconditions and supporting findings.

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