Two exporters held liable for failing to repatriate USD 3.93 lakh export proceeds despite retirement defense under FEMA Sections 7 and 8

The Appellate Tribunal under SAFEMA upheld FEMA contraventions against two appellants for failure to realize and repatriate export proceeds totaling USD 3,93,094.63 across 07 GRs. The Tribunal rejected appellants' defense that their retirement from the export firm absolved them of liability, noting the statutory six-month realization period had expired before their resignation date. The Tribunal found insufficient evidence of effective recovery steps and held both appellants liable under Sections 7 and 8 of FEMA. However, the penalty was reduced from the original amount to Rs 10,00,000 each, with pre-deposits of Rs 5,00,000 to be adjusted against the reduced penalties.

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ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the appellants, as former partners of M/s Rosecut Diamonds, are liable for the failure to realize and repatriate export proceeds under Section 7 and 8 of the Foreign Exchange Management Act, 1999 (FEMA) and related regulations, even after their retirement from the partnership.
• Whether the appellants can be absolved of liability for the contraventions due to their retirement and the provisions of the Family Arrangement cum Compromise Deed and Indemnity.
• The adequacy of the steps taken by the appellants and the remaining partner to realize and repatriate the export proceeds.
• The appropriateness of the penalties imposed on the appellants by the Adjudicating Authority.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of Appellants Post-Retirement

The relevant legal framework includes Section 7 and 8 of FEMA, which mandate the realization and repatriation of export proceeds within a stipulated period. The appellants argued that they retired from the partnership firm as of 01.09.2000, based on a Family Arrangement cum Compromise Deed. However, the Tribunal noted that for seven GRs, the statutory period for realization expired before their retirement. Therefore, the appellants were responsible for these contraventions.

The court interpreted that the responsibility for realization and repatriation begins from the date of export, not after the expiration of the six-month period. The Tribunal found that the appellants cannot escape liability for the seven GRs where the statutory period expired before their retirement.

Issue 2: Adequacy of Steps Taken for Realization and Repatriation

The appellants contended that reasonable steps were taken to recover the export proceeds, including contacting buyers and attempting legal action in Hong Kong. However, the Tribunal found these steps inadequate due to a lack of corroborative evidence. The appellants failed to produce material evidence to support their claims of taking effective steps for recovery.

The Tribunal emphasized that the statutory provisions require exporters, not authorized dealers, to ensure realization and repatriation. The inability to persist in legal proceedings due to financial hardship was not deemed sufficient to absolve responsibility.

Issue 3: Appropriateness of Penalties

The Tribunal reviewed the penalties imposed by the Adjudicating Authority, which included Rs 1,50,00,000/- on M/s Rosecut Diamonds and Rs 1,00,00,000/- on the remaining partner, Ketan A Shah. Considering the circumstances, the Tribunal reduced the penalties for the appellants to Rs 10,00,000/- each, acknowledging the pre-deposit of Rs 5,00,000/- already made by each appellant.

SIGNIFICANT HOLDINGS

The Tribunal upheld the principle that responsibility for realization and repatriation of export proceeds under FEMA starts from the date of export, and partners at the time of export are liable for any contraventions occurring during their tenure. The Tribunal quoted the Adjudicating Authority: "The responsibility of realization and repatriation of the export proceeds starts from the date of export and not after the expiry of the six months period."

The final determination was that the appellants contravened FEMA provisions concerning the seven GRs totaling USD 3,93,094.63, and their retirement did not absolve them of these responsibilities. However, the penalties were reduced in consideration of the appellants' partial compliance and circumstances.

The appeals were partly allowed, with the penalties adjusted to reflect the reduced amounts, taking into account the pre-deposits made by the appellants.

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