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Issues: (i) Whether acceptance of export proceeds from third parties for export consignments made before 08.11.2013 contravened Regulation 3(2) of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000; (ii) Whether the two individual directors are liable under Section 42(1) of the Foreign Exchange Management Act, 1999 for the contraventions.
Issue (i): Whether receipt of export payments from third parties for consignments made prior to 08.11.2013 violated Regulation 3(2) of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000.
Analysis: Regulation 3(2) requires payment for exports to be received in a currency appropriate to the place of final destination as declared in the export declaration form and contemplates receipt from the buyer as indicated in the declaration form. The RBI circular dated 08.11.2013 expressly permitted third-party payments only thereafter and subject to specified conditions, with further procedural relaxation by Circular No.100 dated 04.02.2014 while retaining AD bank safeguards. The temporal sequence shows no regulatory provision allowing third-party receipts without conditions prior to 08.11.2013.
Conclusion: Receipt of export proceeds from third parties for exports made before 08.11.2013 contravened Regulation 3(2) of the aforementioned Regulations.
Issue (ii): Whether the two individual directors are liable under Section 42(1) of the Foreign Exchange Management Act, 1999 for the contraventions in respect of the export consignments.
Analysis: The individual directors admitted signing commercial invoices and participated in the export processes for the consignments in question. There was no satisfactory evidence that the contraventions occurred without their knowledge or despite exercise of due diligence. The impugned order applied Section 42(1) to fix liability on directors responsible for day-to-day affairs where contravention by the company is proved.
Conclusion: The two individual directors are liable under Section 42(1) of FEMA, 1999 for the contraventions.
Final Conclusion: The appeal by the company is partly allowed by reducing the penalty to Rs.15,00,000; the appeals by the two individual directors are dismissed and their penalties are maintained. The tribunals disposition reflects that third-party receipts for exports prior to 08.11.2013 were not permitted under the then applicable regulatory regime, and directors who participated in the relevant export process can be held liable under Section 42(1).
Ratio Decidendi: Third-party receipt of export proceeds without compliance with conditions introduced by RBI circulars is inconsistent with Regulation 3(2) prior to 08.11.2013, and directors involved in the companys day-to-day export activities can be held liable under Section 42(1) FEMA where company contraventions are established and due diligence is not shown.
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