TaxTMI 
TaxTMI 
TaxTMI 
2010 (3) TMI 20
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.... proceedings initiated under Section 16 (3) the Foreign Exchange Management, 1999 (FEMA) against the petitioners by the Respondent Enforcement Directorate (ED) by issuance of a show cause notice dated 10th August 2004 to them for contravention of Sections 7 and 8 FEMA read with Regulations 9 and 13 (i) and (ii) of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 [FEM EGS Regulations 2000] and Section 42 FEMA for non-receipt of export proceeds of hard disk drives exported during 1997-98 during which period the Foreign Exchange Regulation Act, 1973 (FERA) and the Rules framed thereunder were in force. 2. Admittedly the exports for which the proceeds were allegedly not realised were made in 1997-98 by JTS Technology Ltd. (JTS). The case of the ED is that Bhupendra V. Shah [the Petitioner in WP (C) No.19881 of 2004] and Manohar Lal Tandon [the Petitioner in WP(C) No.26 of 2005] were Directors of JTS and Krishan Kumar Batta [the Petitioner in WP(C) No.1038/2005] was its Managing Director at the time the contravention took place. 3. The first submission of Mr. V.Sridharan, learned counsel for the Petitioners, is that the show cause notice is untenable in....
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..... Regulation 4 provides for the manner of repatriation of foreign exchange. It is submitted that inasmuch as the exports in question took place in 1997-98 and in any event Section 7 FEMA exclusively applied to the non-realisation of export proceeds, Section 8 FEMA could not be invoked. 5. An analogy is drawn by the petitioners with similar provisions of the Foreign Exchange Regulation Act, 1947 (FERA 1947). It is pointed out that Section 12 FERA 1947 is pari materia with Section 7 FEMA and Section 10 FERA 1947 is pari materia with Section 8 of FEMA. As far as FERA 1973 is concerned, Section 18 thereof corresponds to Section 7 FEMA and Section 16 FERA to Section 8 FEMA. The above comparisons are drawn to emphasise that there have always been separate provisions dealing with realisation of proceeds of exports and foreign exchange earned or brought into the country (other than by way of exports). Reliance is placed on the judgment of the Supreme Court in M.G. Wagh v. Jay Engineering Works Ltd. AIR 1987 SC 670 where it was held that Section 10 FERA1947 had no application in respect of foreign exchange earnings related to export of goods. It was held that "the entire matter pertaining ....
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....on. The Petitioners were also permitted to challenge another notification dated 26th August 2005 issued in continuation of notification dated 13th August 2003 whereby the Special Director, ED was permitted to adjudicate the cases of contravention of any of the provisions of the FERA 1973 or of any rule, direction or order made thereunder in exercise of his powers under Sections 50 and 51 of the FERA 1973 by virtue of Section 49 (4) of the FEMA from the date of his appointment i.e. 17th August 2003. 9. On 20th February 2007, the following two issues were identified by this Court for being adjudicated upon: "1. Whether the petitioner, on the basis of the admitted facts, can be said to have violated the provisions of Section 8 of the Foreign Exchange Management Act, 1999 in respect of which the show cause notice in question has been issued? 2. Whether Mr S.K. Panda, Special Director of Enforcement - I in the Head Quarters of Delhi had the power to issue the show cause notice in question in view of the provisions of Section 16 of FEMA read with the Notification dated 1.6.2000 issued by the Central Government under Section 16(1) of FEMA?" However, during arguments, learned counsel....
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....limitation for proceeding against the JTS and its directors for contravention of Section 18 FERA 1973 beyond the sunset period as set out in Section 49 (3) FEMA. The complaint itself refers to the letters of the various banks which state that JTS had ceased its operations in 1999 itself. The above details unmistakably show that the exports in question were during the period 1997-98 and the contravention of Section 18 FERA due to the non-realisation of the export proceeds also pertained to the same period. Even according to the ED the non-realisation of the export proceeds did not pertain to any export later than 1997-98. At the given time, FEMA was not yet in force. There was therefore no question of the contravention of any provision of FEMA. The contravention if any was only of the provisions of FERA. However, the show cause notice dated 10th August 2004 and the complaint preceding it invoke only the provisions of Sections 7 and 8 FEMA read with Section 42 thereof and not the provisions of the FERA. 12. Even if the submission of the ED that the mere non-mention of a relevant statutory provision need not vitiate the show cause notice is accepted, the ED has one more hurdle to cro....
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.... Board under sub-section (3) or sub-section (4) of section 52 of the repealed Act shall, if not filed before the commencement of this Act, be filed before the High Court within a period of sixty days of such commencement: Provided that the High Court may entertain such appeal after the expiry of the said period of sixty days if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period. (6) Save as otherwise provided in sub-section (3), the mention of particular matters in sub-sections (2), (4) and (5) shall not be held to prejudice or affect the general application of section 6 of the General Clauses Act, 1897 (10 of 1897), with regard to the effect of repeal." 13. Under Section 49 (3) FEMA, no notice of the contravention of any provision of the FERA can be taken by the Special Director beyond the sunset period, i.e. beyond 31st May 2002. Consequently, unless the ED is able to show that the failure to realise the proceeds of exports for the period 1997-98, which was a contravention of the FERA provisions, "continued" even beyond the `sunset‟ period under Section 49(3) FEMA, the show cause notice issued would be uns....
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....e fact that in para 4 of the writ petition it is stated that the parent US company had been supplying all the raw material to JTS for the manufacture and export of hard disk drives. The US Corporation was unable to withstand the intense competition from 1997 onwards and its business collapsed. Bankruptcy proceedings were filed against it and were pending since 17th November 1998. On 11th November 1997 itself on an application made by JTS, the RBI allowed the request of JTS for setting off the export receivables of the value of Rs. 513.2 crores against the import payable for the value of Rs. 534.3 crores covered by various GR/bills of entry as on 4th May 1997. 17. Further, the complaint itself notices that Bhupendra Shah had informed the ED that he had resigned from Board of Directors of JTS in November 1997. He had furnished a copy of the Form 32 filed by him with the Registrar of Companies (ROC). He had not participated in the day-to-day affairs of the company even during the time he was Director. The writ petition narrates how JTS was evicted from the MEPZ Special Economic Zone on 15th June 1999 and that "the evicted company‟s moveable assets were charged to Banks and Fina....