Foreign exchange receipt and personal culpability: export commission default partly established, but director penalty set aside absent wilful negligence

A statutory right to receive foreign exchange on export commission could not be left to private discretion; where remittance was not received, the matter had to be reported to the Reserve Bank of India under section 16(2) so directions could be sought. On the facts, contravention under section 16(1)(b) was established only for the commission relatable to invoice Nos. C4-1912 and 94 JS 119, because the right to receive had accrued, but not for invoice Nos. 94 JS 164 and 94 JS 174, where no contravention was made out. Penalty against the second appellant was unsustainable absent wilful negligence, personal gain, or other basis for individual culpability, and was set aside.

---

---

Issues: (i) Whether the appellants contravened section 16(1)(b) of the Foreign Exchange Regulation Act, 1973 by failing to realise commission amounts on the relevant export invoices, and if so to what extent; (ii) Whether the penalty imposed on the second appellant was sustainable under section 68(1) and (2) of the Foreign Exchange Regulation Act, 1973.

Issue (i): Whether the appellants contravened section 16(1)(b) of the Foreign Exchange Regulation Act, 1973 by failing to realise commission amounts on the relevant export invoices, and if so to what extent.

Analysis: The right to receive foreign exchange had accrued in respect of the commission on two of the invoices, and non-receipt of the amount did not rest in the discretion of the person entitled to receive it. Even if immediate legal action for recovery may not have been commercially prudent, the position ought to have been reported to the Reserve Bank of India under section 16(2) so that appropriate directions could be sought. On the facts, the refusal of the foreign principal to remit the commission did not negate the existence of the right to receive the foreign exchange. However, the imports covered by two of the invoices did not result in supply of goods to the Indian consignees, and no contravention was made out in relation to those invoices.

Conclusion: Contravention under section 16(1)(b) was established only in respect of the commission relatable to invoice Nos. C4-1912 and 94 JS 119, and not in respect of invoice Nos. 94 JS 164 and 94 JS 174.

Issue (ii): Whether the penalty imposed on the second appellant was sustainable under section 68(1) and (2) of the Foreign Exchange Regulation Act, 1973.

Analysis: No justification was shown for invoking the penal provision against the second appellant. The record did not disclose wilful negligence, personal gain, or conduct warranting liability for the omission to realise the commission, and his actions appeared to have been taken in the ordinary course of business judgment.

Conclusion: The penalty on the second appellant was not sustainable and was set aside.

Final Conclusion: The first appeal succeeded in part, with the penalty reduced, and the connected appeal succeeded in full, with the penalty against the second appellant annulled.

Ratio Decidendi: Where a person has a statutory right to receive foreign exchange, non-receipt cannot be left to private discretion and the matter must be reported to the Reserve Bank of India under the Act; penalty on a director or officer requires a demonstrated basis for personal culpability such as wilful negligence.

---