Export diversion under a restricted credit scheme and director liability for company contravention sustained
Diversion of export consignments from Moscow to Dubai, followed by receipt of payment under the Rupee Credit Scheme meant for exports to the Russian Federation, constituted contravention of the foreign exchange regulatory framework and the RBI circular governing that scheme; the company was therefore liable to penalty. The director was also liable because he was in charge of and responsible for the company's business, and no material showed absence of knowledge, due diligence, or a separable role in the export decisions. The penalties on both the exporting company and its director were sustained.
Issues: (i) Whether the diversion of export consignments from Moscow to Dubai and the realisation of payment under the Rupee Credit Scheme constituted contravention of the foreign exchange regulatory framework and the RBI circular governing exports to the Russian Federation; (ii) Whether the director of the exporting company was liable for penalty under the deeming provision governing company contraventions.
Issue (i): Whether the diversion of export consignments from Moscow to Dubai and the realisation of payment under the Rupee Credit Scheme constituted contravention of the foreign exchange regulatory framework and the RBI circular governing exports to the Russian Federation.
Analysis: The record showed that the disputed consignments, though booked for Moscow, were in fact diverted to Dubai, a hard currency area, and there was no evidence that the goods were thereafter sent to any destination in the Russian Federation. Payment was nevertheless drawn from the Rupee Credit Scheme, which was meant only for exports to the Russian Federation. The finding that the exporter had issued fresh instructions for diversion, and the inability to produce contract records and related export documents, strengthened the conclusion that the scheme was misused and the regulatory conditions were not satisfied.
Conclusion: The diversion and realisation of payment amounted to contravention of the relevant foreign exchange restrictions, and the company was liable to penalty.
Issue (ii): Whether the director of the exporting company was liable for penalty under the deeming provision governing company contraventions.
Analysis: The director was shown to be in charge of and responsible for the conduct of the company's business at the relevant time, and no material was produced to establish absence of knowledge, due diligence, or a role separable from the company's export decisions. Once the company's contravention was established, liability followed under the statutory deeming mechanism applicable to officers in charge of the company's affairs.
Conclusion: The director was also liable for penalty along with the company.
Final Conclusion: The penalties imposed on the exporting company and its director were sustained, and both appeals failed.
Ratio Decidendi: Where export proceeds are drawn under a restricted credit scheme for goods ultimately diverted to a non-permitted destination, the exporter incurs liability for contravention, and a director in charge of the company's affairs is liable under the statutory deeming provision unless absence of knowledge or due diligence is proved.
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