Delayed import payments as trade credit under FEMA, with RBI permission unable to cure the contravention and directors held liable.

Prolonged unpaid import dues were treated under the RBI/FEMA framework as trade credit or external commercial borrowing, so the company's delayed remittances were characterised as a capital account transaction rather than ordinary current account payment. Subsequent RBI permission was held not to regularise the default or wipe out an already completed contravention because the letters expressly did not validate breaches under other laws. The individual directors were also held liable under the deeming provision, as they were directors during the relevant period, had signed statutory statements, and civil penalty under FEMA does not require proof of mens rea. The contravention findings were upheld, but the penalties were substantially reduced.

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Issues: Whether delayed remittances for imported services and goods became trade credit or external commercial borrowing and therefore a capital account transaction under FEMA; whether the RBI's permission regularised the delayed payments or condoned the contravention; and whether the individual directors were liable under the deeming provision for the company's contravention.

Issue (i): Whether delayed remittances for imported services and goods became trade credit or external commercial borrowing and therefore a capital account transaction under FEMA.

Analysis: The outstanding dues arose out of admitted current account transactions for services and goods, but the payments remained unpaid far beyond the six-month period recognised in the RBI circulars governing import payments. The Tribunal held that under the extant RBI framework, deferred or delayed import payments beyond the permissible period are treated as external commercial borrowings or trade credit, even if no separate loan agreement or interest clause exists. The distributor agreement did not displace the statutory consequences of the prolonged deferment, and the contractual references to payment intervals and compliance with local law did not prevent the characterisation of the unpaid amounts as credit facilities under FEMA.

Conclusion: The delayed payments were correctly treated as trade credit or external commercial borrowing and the company's contention on this issue failed.

Issue (ii): Whether the RBI's permission regularised the delayed payments or condoned the contravention.

Analysis: The Tribunal accepted that the RBI letters permitted remittance from the foreign exchange angle, but those communications expressly stated that they should not be construed as validating irregularities or contraventions under other laws. The record also showed that the delays were not established as having occurred due to genuine financial difficulty or dispute so as to bring the case within the protective part of the relevant RBI instructions. Accordingly, the subsequent permission did not erase the completed breach.

Conclusion: The RBI permission did not condone or wipe out the contravention.

Issue (iii): Whether the individual directors were liable under the deeming provision for the company's contravention.

Analysis: The Tribunal held that the directors of an Indian company cannot avoid responsibility merely by asserting foreign nationality or lack of day-to-day control. On the record, they were directors during the relevant period, had signed statutory financial statements, and there was no sufficient material showing due diligence or that the contravention occurred without their knowledge. The Tribunal also held that civil penalty under FEMA does not require proof of mens rea and that the statutory deeming provision attached liability to those responsible for the conduct of the company's business.

Conclusion: The individual directors were held liable along with the company.

Final Conclusion: The contravention findings were upheld, but the penalties were substantially reduced, resulting in only a partial relief to the appellants.

Ratio Decidendi: Under FEMA and the RBI import-payment framework, prolonged unpaid import dues can acquire the character of trade credit or external commercial borrowing, subsequent RBI permission does not by itself condone an already completed contravention, and civil penalty for such breach does not depend on proof of mens rea.

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