2025 (3) TMI 1140 - AT - FEMA

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 ... Contraventions of FEMA provisions - liability for the failure to realize and repatriate export proceeds under Section 7 and 8 of FEMA - 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? HELD THAT:- The Appellants therefore cannot escape the rigours of law with respect to their failure in realization of the pending export proceeds with respect to the 07 GRs totaling USD 3,93,094.63 as mentioned above. We observe that with respect to the 07 GRs for amount of USD 3,93,094.63, the statutory period of six months for realization and repatriation of the full export value of the goods exported had expired between 02.05.2000 to 13.08.2000, that is much before the date of resignation of the two Appellants w.e.f. 01.09.2000. The pleadings made with respect to the efforts of contacting the buyers through letters, faxes and telephones etc. to be regarded as reasonable steps cannot be accepted as observed in the preceding paragraphs of this Order. Appellants too have failed to produce material available to corroborate that they had taken effective steps to recover /repatriate the foreign exchange dues. We therefore, find that the resignation of the two Appellants from M/s Rosecut Diamonds would not absolve them from the charge of contraventions of FEMA r/w Section 42 of FEMA with respect to the 07 GRs totaling USD 3,93,094.63. Thus, we find that the two Appellants, have contravened Section 7 and 8 of the FEMA, 1999 read with Regulations 8, 9 and 13 of the FEMA Regulations, 2000 read with Section 42(1) of FEMA, 1999 with respect to the 07 GRs of the amount USD 3,93,094.63.] Penalty imposed for failure to realize and repatriate US $ 10,24,967.32 with respect to 19 GRs - Adjudicating Authority has imposed penalty of Rs, 1,00,00,000/- on Shri Ketan A Shah who was the Partner of the Export Firm throughout the relevant period for the aforementioned contraventions in terms of Section 42 (1) of FEMA. In view of these circumstances and factors, we reduce the penalty imposed on the two Appellants to Rs 10,00,000/- (Rs Ten Lakhs Only) each. Since, Sh. Mehul R Shah and Sh. Ashwin H Shah in Appeals have paid Rs. 5,00,000/- as pre-deposit of the penalty amounts, the amount of pre-deposit made by the two Appellants are to be adjusted against the aforementioned reduced penalty amounts. ISSUES PRESENTED and CONSIDEREDThe 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 ANALYSISIssue 1: Liability of Appellants Post-RetirementThe 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 RepatriationThe 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 PenaltiesThe 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 HOLDINGSThe 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.