Exchange Control Copy non-production can be a substantive FEMA contravention, with directors liable absent due diligence proof.

The article explains that, under FEMA's transitional limitation rule, notice issued within two years of commencement was valid, so the limitation objection failed. It also states that refusal to allow cross-examination of bank officials did not vitiate adjudication because the bank clarification reduced the liability and caused no prejudice, so no natural justice breach was made out. On the merits, non-production of the Exchange Control Copy of the Bill of Entry was held to be a substantive contravention, not a mere technical lapse, and the company failed to prove the remittances were matched by imports. Directors in charge of business remained liable absent proof of lack of knowledge or due diligence, so the penalties were sustained.

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Issues: (i) Whether notice of the alleged contravention was taken within the period permitted under the transitional limitation provision of the Foreign Exchange Management Act, 1999. (ii) Whether the adjudication was vitiated for breach of natural justice for want of cross-examination of bank officials and for reliance on the bank clarification. (iii) Whether failure to furnish the Exchange Control Copy of the Bill of Entry was only a technical breach and whether the liability of the company and its directors stood established.

Issue (i): Whether notice of the alleged contravention was taken within the period permitted under the transitional limitation provision of the Foreign Exchange Management Act, 1999.

Analysis: The relevant show-cause notice was signed on 31.05.2002, and the new statutory regime commenced on 01.06.2000. The limitation bar applies only if the adjudicating authority takes notice after expiry of two years from commencement. On the facts found, the notice was issued within the statutory period, and the allegation of ante-dating was unsupported.

Conclusion: The limitation objection failed and is against the appellants.

Issue (ii): Whether the adjudication was vitiated for breach of natural justice for want of cross-examination of bank officials and for reliance on the bank clarification.

Analysis: The bank clarification was obtained in the course of adjudication to verify whether the Exchange Control Copies had in fact been furnished. The clarification reduced the quantified liability by accepting some bills of entry in part or in full, and therefore did not prejudice the appellants. Refusal to treat the absence of cross-examination as fatal did not warrant a de novo enquiry on the facts found.

Conclusion: No violation of natural justice was established and this issue is against the appellants.

Issue (iii): Whether failure to furnish the Exchange Control Copy of the Bill of Entry was only a technical breach and whether the liability of the company and its directors stood established.

Analysis: The statutory framework made it obligatory for the importer to submit the Exchange Control Copy of the Bill of Entry to the authorised dealer, and the foreign exchange acquisition carried a presumption that the goods imported corresponded with the declaration. The affidavits and accountant's certificate did not satisfy the legal requirement, and the company failed to establish that the imports were proved for the majority of the remittances. The directors were shown to be in charge of and responsible for the conduct of business at the relevant time, and no material was shown to bring the matter within the statutory exception.

Conclusion: The contravention was held established against the company and the directors, and the plea of technical breach failed.

Final Conclusion: The penalties were sustained and the appeals were rejected on all substantive grounds.

Ratio Decidendi: Where the statutory scheme requires production of the Exchange Control Copy of the Bill of Entry to verify the use of remitted foreign exchange, non-production is not a mere technical breach, and directors in charge at the time of contravention remain liable unless they prove lack of knowledge or due diligence.

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