2024 (6) TMI 195 - HC - FEMA

Export proceeds penalty quashed due to denial of hearing opportunity and excessive delay under Section 17 FEMA

M/s. Midas Communication Technologies Pvt Ltd., Rep. By its authorised signatory Shirish Purohit, Shirish Purohit Versus The Special Director, Directorate of Enforcement (Adjudication), Chennai

The Madras HC quashed an order passed under Section 17 of FEMA regarding failure to realize export proceeds worth $10 million from Brazil during ... Validity of Order passed u/s 17 of FEMA - specific ground raised by the petitioners is that the petitioners were not given opportunity of hearing after receipt of the letter from the respective banks Whether the writ petition is maintainable or not when the statutory alternative remedy is available? - HELD THAT:- As against the order passed by the adjudicating authority i.e. the respondent, there is statutory appeal for any person aggrieved by the order passed by the adjudicating authority u/s 17 of the FEMA, 1999. But the existence of the alternative remedy is not an absolute bar to the maintainability of this writ petition under Article 226 of the Constitution of India. It can be entertained where there is a breach of fundamental rights, where there is violation of the principles of natural justice, where there is an excess of jurisdiction or where challenge to the vires of the statute or delegated legislation. No materials gathered behind one's back can be relied on without giving opportunity to the said person to challenge the correctness and accuracy of the said information. That not having been done in the present case and as such, it is clear violation of principles of natural justice. Further, there is huge delay for imposing of penalty for contravention of Section 7(1)(a) of FEMA, 1999 r/w Regulations 9(1) and 13 of Regulations, 2000. Therefore, the writ petition is very much maintainable without exhausting the alternative remedy as provided u/s 17 of FEMA, 1999. Failure to realize export proceeds from Brazil during 2004-2005 - The first petitioner is the indigenous manufacturer of various telecommunication and networking product. On complaint, the respondent alleged that the petitioners had realised export proceeds made by it to Brazil during the period between the years 2004 to 2005 valued at 10 million US dollars. Therefore, investigation was initiated against the first petitioner. During the investigation, letters were sent to the petitioners' bankers i.e. Axis Bank, Mylapore, Chennai, Canara Bank, Chennai and City Bank, Chennai. The Manager of the first petitioner was served with notice and statement was recorded under Section 37 of FEMA, 1999 on 09.01.2008 and 19.07.2013. During the period March 2003 to June 2008 by raising 39 bills had exported telecommunication and other allied products to various overseas importer to an extent of 10792473 US dollars equivalent to Rs. 46,77,54,277.44/- and failed to realise the export proceeds and thereby contravened Section 7(1)(a) of FEMA r/w Regulations 9(1) and 13 of Regulation, 2000. After filing of complaint, the petitioners were issued show cause notice dated 14.10.2015, and on receipt of the same, the petitioners had sent their reply dated 16.12.2015. The issue is non recovery of portion of the exports done to multiple customers with whom the petitioners had ongoing export businesses then and permission sought for from the dealers for writing off a portion of the bills which were non commodity engineering technical exports in the interest of further export business. Their request for write off was neither rejected nor acceded to and after more than 12 years, the petitioners were served notices for such transactions. Therefore, the long delay of more than 10 years with regard to the transactions is unfair and deprived of the petitioners a reasonable opportunity to defend themselves in respect of the alleged contraventions. Further, the entire information received from the dealers / banks had been behind the petitioners' back and without an opportunity to the petitioners, it was adjudicated. Therefore the petitioners are not guilty of any non declaration in terms of Section 7(1)(a) of FEMA r/w Regulation 9(1) and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. First petitioner is no longer in operation for more than a decade. The second petitioner is employed in other company. The first petitioner has no operation, no revenues and no staff or employees and it is facing liquidation proceedings. There is absolutely no explanation for the delay in issuance of notice, that too after period of 10 years. Therefore, the impugned order cannot be sustained and the same is liable to be quashed. Accordingly, the impugned order and the demand notice are quashed and this writ petition is allowed. Issues Involved:1. Maintainability of the writ petition when a statutory alternative remedy is available.2. Sustainability of the impugned order.Issue-wise Detailed Analysis:1. Maintainability of the Writ Petition:The primary issue was whether the writ petition is maintainable under Article 226 of the Constitution of India despite the availability of a statutory alternative remedy under Section 17 of the Foreign Exchange Management Act (FEMA), 1999. The court acknowledged that while the existence of an alternative remedy is generally a bar to the maintainability of a writ petition, exceptions exist. These exceptions include breaches of fundamental rights, violations of the principles of natural justice, excess of jurisdiction, or challenges to the vires of the statute or delegated legislation. The petitioners argued that they were not given an opportunity for a hearing after receiving letters from their respective banks, which constituted a clear violation of the principles of natural justice. The court agreed, noting that no materials gathered behind one's back can be relied upon without giving the affected party an opportunity to challenge the correctness and accuracy of the information. The court found that this violation of natural justice justified the maintainability of the writ petition without exhausting the alternative remedy.2. Sustainability of the Impugned Order:The second issue was whether the impugned order could be sustained. The petitioners, an indigenous manufacturer of telecommunication and networking products, were alleged to have failed to realize export proceeds valued at 10 million US dollars from exports made to Brazil between 2004 and 2005. The investigation initiated against the petitioners resulted in a show cause notice dated 14.10.2015, and the impugned order was passed on 17.06.2021, imposing a penalty. The petitioners contended that their request for write-off was neither rejected nor accepted, and after more than 12 years, they were served notices for such transactions. They argued that the long delay deprived them of a reasonable opportunity to defend themselves. The court noted that the entire information received from the banks was behind the petitioners' back and without an opportunity for them to contest it. The court found that the petitioners were not guilty of any non-declaration under Section 7(1)(a) of FEMA r/w Regulation 9(1) and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The court also noted that the first petitioner had no operations, no revenues, no staff, and was facing liquidation proceedings. The second petitioner was employed elsewhere. The court concluded that there was no explanation for the delay in issuing the notice, which was issued after a period of 10 years. Consequently, the court held that the impugned order could not be sustained and was liable to be quashed.Conclusion:The court quashed the impugned order dated 17.06.2021 and the demand notice dated 14.06.2022, allowing the writ petition. The court also closed the connected miscellaneous petitions and ordered no costs.