2024 (11) TMI 797 - AT - FEMA

Tribunal Affirms FEMA Breach: Export Proceeds Unrecovered, Reduces Director Penalties to Rs. 2,00,000 Each.

Shri. Rais Ahmed, Shri. Abdul Sagir Khan Versus The Special Director Directorate of Enforcement, Mumbai

The Tribunal upheld the contravention of FEMA provisions by the appellants, a company and its directors, for failing to realize export proceeds. Despite ... Penalty on directors for contravening Export regulations under FEMA - non-realization of export proceeds - no documentary evidence in support of their contention of having made efforts to realize the export proceeds - Tribunal disposed of the applications for waiver of the pre-deposit of the penalty amounts with direction to deposit 10% of the amount of penalty imposed against each of them with Bank Guarantee for rest of the ninety per cent of the penalty within 30 days of the receipt of the Order - on legal advice they withdrew their suits before the Mumbai High Court and fresh legal suits were filed in the High Court of Justice, London. HELD THAT:- We find that with respect to these appeals the Company M/s Mrugank Investments Limited failed to realize the export proceeds in respect of G.R.No.AU701578 dated 10.08.2000 for US$ 9,03,000/- negotiated through the Global Trust Bank Limited. It is also a matter of record that the RBI had refused further extension of time to realize the proceeds and had put the Company under the caution list restricting its right to make further exports. There is nothing on record to show that a suit was filed in the London Court. In fact, the Appellants have failed to produce any evidence to corroborate any direction from the London Court to their buyers to pay pending export proceeds. The conduct of the Appellants in filing Writ Petition before the Hon’ble Bombay High Court and thereafter having yet withdrawn does not reflect the same as reasonable step taken by the Appellants for realization of the pending export proceeds. The Appellants have also failed to show their correspondence with the High Commission of India in London, in-spite of directions to this effect by the RBI. We also find that the two appellants before us were the Directors of the Company who were responsible for the conduct of affairs of the Company at the relevant point in time. It is documented to the Show Cause Notice that the Appellant Shri Rais Ahmed was Director from 20.07.1993 to 29.03.2004 and the Appellant Shri Abdul Sagir Khan was Director from 01.06.2000 to 10.04.2001. This information was provided by Shri Rais Ahmed in his statement dated 03.08.2005. There is nothing to the contrary on record. We do take note of their efforts to keep the RBI informed and also to the fact that the buyers had to face global recession during the relevant time. No reason to intervene with the Impugned Order insofar as its findings that the two Appellant Directors have contravened Section 8 of the Foreign Exchange Management Act, 1999 r/w Regulation 9 & 13 of the Foreign Exchange Management (Export of Goods and Services) Regulation 2000 r/w Section 42 of FEMA 1999. However, the ends of justice will be met on reduction of the penalty amount on the two Appellant Directors to Rs. 2,00,000/- each. Issues:1. Penalty imposed under FEMA for contravention of export regulations.2. Efforts made by the appellants to realize pending export proceeds.3. Arguments presented by both the appellants and the respondent.4. Examination of evidence and findings by the Tribunal.5. Decision on the penalty amount and adjustment of pre-deposits.Analysis:The judgment pertains to two appeals filed against an order imposing penalties under the Foreign Exchange Management Act, 1999 (FEMA) for contravention of export regulations. The penalties were imposed on a company and its directors for failure to realize export proceeds. The appellants argued that they had made reasonable efforts to recover the pending export proceeds, including sending reminders to buyers and pursuing legal action. However, the respondent contended that the appellants had not provided sufficient evidence of their efforts and had contravened FEMA provisions.The Tribunal examined the submissions and evidence presented by both parties. It noted that the company had failed to realize export proceeds, leading to restrictions imposed by the Reserve Bank of India (RBI). The appellants were found to have not taken adequate steps to recover the outstanding amounts, including failing to produce evidence of legal action in London and correspondence with the High Commission of India. The Tribunal also highlighted that the appellants were directors responsible for the company's affairs during the relevant period.Ultimately, the Tribunal upheld the findings that the appellants had contravened FEMA provisions but decided to reduce the penalty amount imposed on the two appellant directors to Rs. 2,00,000 each. The pre-deposits made by the appellants were to be adjusted against the reduced penalty amount. The appeals were partly allowed, and the penalty amount was reduced in light of the circumstances presented during the proceedings.