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

The Madras HC quashed an order passed under Section 17 of FEMA regarding failure to realize export proceeds worth $10 million from Brazil during 2004-2005. The petitioners challenged the order citing denial of hearing opportunity after banks' letters were received. The HC held that despite statutory appeal availability under Section 17 FEMA, writ petition was maintainable due to violation of natural justice principles. The court found that information was gathered without giving petitioners opportunity to challenge its accuracy, constituting clear violation of natural justice. Additionally, the HC noted excessive delay of over 10 years in imposing penalty, which deprived petitioners of reasonable defense opportunity. The first petitioner company was no longer operational and facing liquidation proceedings.

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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.

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