Self write-off under RBI threshold avoids FEMA penalty where exporter made bona fide recovery efforts and complied with procedure.

Where an exporter who is a status holder effected part realisation, entered an MOU reducing the claim, pursued criminal and civil remedies and could not execute recovery against foreign assets, the outstanding export proceeds falling within the RBI self write off threshold may be treated as legitimately write offable; consequently imposition of penalty under FEMA for non realisation is not warranted on these facts and the prior penalty is set aside. The operative effect is that bona fide, documented recovery efforts plus compliance with the RBI self write off facility negate penalty liability for the specified shortfall.

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Issues: Whether the penalty imposed under provisions of the Foreign Exchange Management Act, 1999 for non-realisation of export proceeds is sustainable, and whether the appellant is entitled to relief on account of bona fide efforts to realise the proceeds and under the RBI self write-off facility.

Analysis: The appeal examines alleged contraventions of Section 7(2), Section 8 and Section 42 of the Foreign Exchange Management Act, 1999 read with Regulation 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, in respect of outstanding export proceeds. The material shows part realisation, a memorandum of understanding reducing the disputed claim, initiation of criminal and civil proceedings in India, a decree in favour of the exporter and documented efforts to pursue recovery; execution against the foreign buyer was not possible for lack of assets in India. The RBI Master Circular dated 01.07.2014 permits status holder exporters to self write off unrealised export proceeds up to 10% of total export proceeds realised in the previous calendar year. The outstanding amount in issue is within that permissible limit and, on the facts, the exporter took bona fide and reasonable steps to realise and repatriate the foreign exchange.

Conclusion: The penalty imposed for non-realisation of export proceeds is set aside and the appeal is allowed in favour of the appellant.

Ratio Decidendi: Where an exporter who is a status holder has taken bona fide and reasonable steps to realise export proceeds and the outstanding amount falls within the RBI permitted self write-off threshold, the imposition of penalty under FEMA for non-realisation is not justified.

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