Inordinate delay in initiating proceedings defeats enforcement; lack of exporter status and post facto MOU precludes penalty.

Show cause notice and penalty orders under FEMA and the Export Regulations were held unsustainable on grounds of inordinate delay in issuing proceedings without statutory limitation, absence of evidence that the appellant was the exporter at time of shipment (a post facto MOU with partnership firms did not effectuate exporter status or successor liability), imposition of penalties on persons who were not directors when obligations arose, and partial occurrence of exports before the regulatory transition date creating a transitional/sunset question; respondent failed to prove lack of recovery steps or justify the delay, and the appeal was allowed.

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Issues: Whether the show cause notice and penalty orders under the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 are sustainable where (i) there was substantial delay between detection of default and issuance of notice, (ii) the appellant company was not the named exporter at the time of export and relied only on an MOU with the partnership firms, and (iii) parts of the exports occurred prior to 01.06.2000 (sunset/FERA transition issue), and whether penalties on persons who were not directors at the relevant time are justified.

Analysis: The notice was issued several years after the default was detected and after interim statements were recorded; such inordinate delay engages the principle that proceedings must be initiated within a reasonable period where no statutory limitation is prescribed, and the precedent relied upon (Citi Bank) supports interference for delay. The record does not establish that the appellant company was the exporter at the time of shipment; the exporters were partnership firms and a mere MOU post-facto does not substitute for statutory or company-law steps that would transfer exporter status or create successor liability. Penalising individuals who joined the company after the alleged contravention lacks nexus to the period when the export-related obligations arose. The exports partly pre-dated 01.06.2000, raising transitional/sunset issues under FERA/FEMA which further weakens the basis for invoking FEMA against the appellant without clearer statutory or factual foundation. The respondent did not demonstrate that reasonable steps to recover export proceeds were not taken by the original exporters, nor did it justify the long delay in issuing the notice.

Conclusion: The impugned show cause notice and penalty orders are unsustainable on the grounds of inordinate delay, absence of a lawful basis to treat the appellant company as the exporter based solely on the MOU, and imposition of penalties on persons not directors at the relevant time; the appeal is allowed and the impugned order is set aside.

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