1995 (8) TMI 348 - AT - FEMA

Appeals Successful: Charges Dismissed for Non-Contravention of Foreign Exchange Act Due to Lack of Enforceable Claim.

Guru Ispat Ltd. Versus Director of Enforcement

The appeals were successful, and the impugned order was set aside, as the appellants were found not guilty of contravening section 16(1)(a) of the Foreign ... - Issues:Violation of section 16(1)(a) of the Foreign Exchange Regulation Act, 1973 for non-realization of a claim amount from a foreign supplier.Detailed Analysis:1. The appeal was filed against an Adjudication Order imposing penalties for contravention of section 16(1)(a) of the Act. The appellants failed to follow procedural requirements initially but sought waiver of pre-deposit. The High Court's directions and the interest of justice led the Chairman to consider the waiver request despite the procedural lapses.2. The appellants argued that the impugned order did not establish a contravention of section 16A of the Act. They contended that the claim made to the foreign supplier was provisional and not pursued due to lack of evidence of loss. The legal counsel emphasized that the order was illegal and should be set aside. The second, third, and fourth appellants' status under section 68(1) was also challenged.3. The respondents acknowledged the basis of the charge against the appellants but criticized their delayed legal opinion seeking. They argued that the claim against the foreign supplier was valid and should have been pursued earlier. The respondents suggested partial deposit of penalties but did not press further due to financial considerations.4. The Chairman appreciated both counsels' arguments but found the contravention based on an error of law. The waiver of pre-deposit was granted, and the appeals were disposed of in a common order.5. The seizure of documents in 1990 revealed a complaint against the foreign supplier for inferior quality supplies. The appellants' claim was based on a letter and debit note, but the foreign supplier's response was not acknowledged. The Adjudicating Officer found a contravention of section 16(1)(a) based on these facts.6. The analysis of section 16(1)(a) highlighted the necessity of a legally enforceable claim against the foreign supplier to establish a contravention. The absence of evidence regarding the contract terms, quality standards, and quantifiable loss negated the appellant's contention of breach and right to receive foreign exchange.7. The judgment emphasized that a mere demand without legal basis does not create a right to receive foreign exchange. The Adjudicating Officer's error in assuming the foreign supplier's acceptance of the claim through silence was also highlighted.8. Consequently, the appellant was found not guilty of contravention of section 16(1)(a), leading to the setting aside of the impugned order against all appellants. The lack of specific findings regarding the status of the second, third, and fourth appellants under section 68(1) further supported the appeal's success.