2009 (11) TMI 338 - HC - Customs

High Court Upholds Penalty for Failing to Realize Export Proceeds

The High Court upheld the charge against the respondents for contravening Section 18(2) and (3) of FERA by failing to realize export proceeds within the ... Penalty – Non realization of export proceeds - Section 54 of the Foreign Exchange Regulation Act, 1973 – Held that: - it is observed that in Section 18(2) and 18(3) of the Act, nowhere it is mentioned mens rea. In other words, once the factum of contravention is found, the offence is complete. - The factual circumstances would indicate that there was no sincere nor reasonable steps initiated on the part of the respondents which make them liable to attract the provisions in Section 18(2) and (3) of the Act. Following the principles laid down in the decisions of the Apex Court, it has to be held that this is a classical instance of contravention of provision of FERA. – Penalty imposed Issues Involved:1. Contravention of Section 18(2) and (3) of the Foreign Exchange Regulation Act, 1973 (FERA).2. Applicability of Foreign Exchange Management Act, 1999 (FEMA) after FERA was replaced.3. Reasonableness of steps taken by the respondents to realize export proceeds.4. Requirement of mens rea for imposing penalties under FERA.Issue-wise Detailed Analysis:1. Contravention of Section 18(2) and (3) of FERA:The respondents were charged with contravening Section 18(2) of FERA by failing to realize export proceeds amounting to US Dollars 52,739.46 within the prescribed time limit. The Director of the Company was held liable under Section 68(1) of the Act. The adjudicating authority imposed a consolidated penalty of Rs. 5 lakhs on the respondents. The Appellate Tribunal initially allowed the appeal, stating that the respondents had taken sincere steps to realize the proceeds, thus absolving them from the penalty. However, the High Court found that there was no material evidence to show that the respondents had taken reasonable steps to recover the payment within the prescribed period, thereby contravening the provisions of Section 18(2) and (3) of FERA.2. Applicability of FEMA after FERA was replaced:The respondents argued that since FEMA came into effect on 1-6-2000, the charge under FERA was not maintainable. The High Court, however, upheld the Tribunal's observation that any offence committed under the repealed FERA would continue to be governed by its provisions as per Section 49(3) and (4) of FEMA. The exports in question were made in February and May 2000, and the six-month period for realizing the proceeds expired in August and November 2000, which was after FEMA came into force. The Court concluded that the contravention occurred before FEMA was enacted, thus justifying the proceedings under FERA.3. Reasonableness of steps taken by the respondents to realize export proceeds:The respondents contended that they had taken reasonable and sincere efforts to realize the export proceeds within the stipulated period. The Appellate Tribunal initially accepted this contention. However, the High Court found that the first letter from the Company to the concerned authorities was dated December 2000, which was beyond the six-month period. The Court emphasized that there was no evidence of reasonable steps taken within the prescribed period to recover the proceeds, thus failing to meet the requirements of Section 18(3) of FERA.4. Requirement of mens rea for imposing penalties under FERA:The High Court referred to the Supreme Court's decision in Director of Enforcement v. M.C.T.M. Corporation Pvt. Ltd., which held that mens rea is not an essential ingredient for imposing penalties under Section 23(1)(a) of FERA. The Court reiterated that once the contravention of the statutory obligation is established, the penalty is attracted regardless of the presence of mens rea. The Court further cited the Division Bench decision in Union of India v. M/s. S.K. Senjan Chettiar & Sons, which supported the view that mens rea is not required for imposing penalties under FERA.Conclusion:The High Court concluded that the respondents had not taken sincere or reasonable steps to realize the export proceeds within the prescribed period, thereby contravening the provisions of Section 18(2) and (3) of FERA. The Court set aside the Appellate Tribunal's order and upheld the charge and penalty imposed by the Deputy Director of Enforcement. The Civil Miscellaneous Appeal was allowed, and the respondents were held liable for the contravention of FERA provisions.