2026 (1) TMI 858 - AT - FEMA

Third-party receipts for export proceeds unlawful pre-08.11.2013; RBI circulars not retrospective; directors fined Rs3L each.

Whether Regulation 3(2) prohibits third-party receipts for export proceeds: Regulation 3(2) requires receipts in a currency appropriate to the export's ... Third party payments for export transactions - Pre-deposit of penalty - Contravention of Regulation 3(2) of Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 - Directorial liability under Section 42(1) of FEMA, 1999 - Authorised Dealer banks' obligations - Bona fides and FATF norms - Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 - FEMA Notification No. 14/2000-RB dated 3 May 2000 - RBI A.P. (DIR Series) Circular No.70 dated 08.11.2013 - RBI Circular No.100 dated 04.02.2014 - HELD THAT:- On reading of the provisions of the Regulation 3 (2), it is clear that payment for the export from India had to be made in a currency appropriate to the place of final destination of the export consignment. Such final destination had to be mentioned in the declaration form. The requirement for receiving payment in that currency which is appropriate to the final destination is irrespective of the residence of the buyer of the export consignment. It therefore follows that such destination required to be declared by the exporter would be the one as indicated by the buyer of the export consignment. There is thus no mention about such payment arising from any person other than the buyer and hence the provision for payment from the third party is not even visualised. We also observe that the Appellants have failed to produce any statutory provision, notification or circular as to demonstrate it otherwise. On perusal of the RBI Circular dated 08.11.2013, it is evident from the title itself that it provided for third party payments for exports/import transactions. - It is with the experience of a few months that further liberalization was made on 04.02.2014, whereby the cautious approach prescribed for the banks was not completely discarded as the banks were still required to be satisfied with the bona fides of the transaction, as well as keep the norms stipulated by the FATF in view. We therefore conclude that the contravention of Regulation 3 (2) of the aforementioned Regulations 2000 had occurred for the export consignments made before 08.11.2013 for which payments for the export proceeds had been received from third party. In so far as the two individual Appellants are concerned, we concur with the findings made in the Impugned Order. The two individual Appellants have admitted signing the commercial invoices relating to the impugned export consignments. While it may be true that Late Shri Jagdish Prasad Khemka may have been responsible for the export business of the Appellant Company, it cannot be denied that the two individual Appellants participated in the process of the export consignments for which questionable receipt of payments from the third parties had happened. We find that the ends of justice will be met with the reduction of penalty on the Appellant Company to the amount of Rs. 15,00,000/-. The amounts of penalty of Rs. 3,00,000/- each imposed on the two individual Appellants are maintained, being merely 0.2% of the amount of contravention involved. The pre-deposits of the penalty amount shall be adjusted against the penalties. 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.