TaxTMI 
TaxTMI 
2020 (11) TMI 513
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....an Nair. The appeal filed by Shri V.P. Gopalakrishnan Nair has been dismissed on 09.01.2019 by the Division Bench. The SCNs were issued to all these appellants and Shri V.P. Gopalakrishnan Nair vide Memorandum dated 27.04.2000 by the Special Director for violation of Sections 18(2) & 18(3) and Section 18(2) & 18(3) of the Foreign Exchange Regulation Act (FERA), 1973 respectively read with relevant Central Government Notifications and proceeded against for adjudication. As per the allegations, the appellants and the deceased appellant have violated various provisions of FERA, 1973 as explained in the relevant Show Cause Notices. (i) Memorandum bearing No.T-4/7-M/2000/SCN-I & SCN-II dated 27.04.2000 issued to M/s. Trend Setters Instyle India Ltd. & M/s. Mode Creazone India Pvt. Ltd. respectively for contravention of Sections 18(2) read with Central Government Notifications F.No.1/67/EC/73-1 & 2 both dated 01.01.1974 and Section 18(3) of FERA, 1973 for failure to realise export proceeds in respect of 51 GR forms and in respect of 21 GR forms involving US $ 7,45,333.95 & US $ 3,97,366,51 respectively. (ii) Memorandum bearing No.T-4/7-M/2000/SCN-III dated 27.04.2000 is....
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....d that during the course of investigation, statement of Shri V. Gopalakrishnan Nair, the then Director of the M/s. Trend Setters Companies was recorded on 22.10.1996 and the statements of Shri K. Balachandran, General Manager (Commercial) were recorded on 22.03.1999 & 05.05.1999 and later statement of Shri S. Sunil Kumar, Chief Executive Officer of the companies was recorded on 01.12.1999. On the basis of materials available, replies filed by the appellants and after hearing the parties, the Adjudicating Authority i.e. the Special Director, Enforcement Directorate came to the following findings which are reproduced below: "31. Keeping in view the submissions and records discussed hereinbefore, the factual position remains uncontroverted that the export proceeds amounting to US $ 7,45,333.95 (SCN-I), US $ 3,97,366.51 (SCN-II) and US $ 4,69,930.58 (SCN-V) are pending realisation for which the noticees could not adduce an iota of evidence to demonstrate any steps having been taken for realizing the same. Filing of applications, way back in 1999, before the RBI, who also have not accepted the same, cannot be a tenable explanation for failure to take any steps for r....
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.... individual appellants. The total penalties imposed on the companies and appellants for the violations of the aforesaid provisions of law are as below:- Companies/Appellants Total Penalties Amount (a) M/s. Trend Setters Instyle Pvt. Ltd. (SCN-I &III) = Rs. 35,00,000/- (b) M/s. Mode Creazone India Pvt. Ltd. (SCN-II) = Rs. 15,00,000/- (c) M/s. Trend Designs Ltd. (SCN-IV) = Rs. 25,000/- (d) M/s. Intimate Apparels (P) Ltd. (SCN-V) = Rs. 20,00,000/- (e) Shri Sebastian Chokkattu (SCN-I to V) = Rs. 42,15,000/- (f) Shri Biju Thomas (SCN-I to IV) = Rs. 10,05,000/- (g) Shri S. Sunil Kumar (SCN-I to IV) = Rs. 10,05,000/- (h) Shri M. Balakrishnan (SCN-V) = Rs. 4,00,000/- Being aggrieved with the aforesaid findings the appellants have filed the present appeals on following facts and grounds: It is revealed from the record that the Trend Setters Group of Companies were engaged in business from Cochin Export Processing Zone as 100% export-oriented units since 1989 and were exporting readymade garments to U.S.A., Canada, U.A.E., Hong Kong, etc. and that they were procuring raw materials within India an....
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....nd U.A.E. and that Bills of Entry (B/E for short) in respect of remittances of Rs. 5,84,106/- and Rs. 5,77,830/- on 08.08.1997 and 03.07.1997 by M/s. Trend Designs Ltd. were already submitted to the authorised dealer for submission of the same to the RBI and in respect of remittance of Rs. 16,59,044/- on 02.01.1997 by M/s. Mode Creazone India Ltd., the relevant B/E was submitted to the RBI and that in regard to remittance of Rs. 6,467/- on 10.11.1995 against import of price tickets (labels), the material was received by courier and the concerned postal-wrapper, to be submitted as proof of import, could not be traced. It was also found that M/s. Trend Designs Ltd. did not submit B/E in respect of remittance of US $ 5659/- to M/s. Wide Way Textiles Ltd., Hong Kong against Invoice No.99009 E dated 09.04.1996 for import of fabrics. In this regard, Shri Balachandran, General Manager (Commercial) stated that the company had placed order for 112 rolls of corduroy from the Hong Kong company under Letter of Credit and the material after clearance was found to contain only 71 rolls, i.e. short supply of 41 rolls for value of US $ 5,659/- and that short shipment was recorded in the Madras ....
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....00/- with regard to Memorandum SCN-IV and T-4/22- M/2002/SCN V dated 30-05-2002 Rs. 12,00,000/- under Section 68 of FERA Act, 1973. 2) The Appellant herein was one of the Directors and Promoter of the Companies but was never involved in the day to day business affairs of the aforesaid Companies as was based abroad and had appointed Shri. V.P. Gopalakrishnan Nair, as full time Managing Director till 1998 who was assisted by Professional functional Managers to assist him. 3) That the Appellant herein who was the promoter of Trend Setters Group is an NRI based in Hong Kong, where he is also carrying on business in the name of M/s. Trend Setters Ltd, Ajman. Shri Biju Thomas is another NRI Director in the Companies. The Group Companies was having factories in Sri Lanka & Ajman and offices in Hong Kong & Taiwan. The day-to-day business affairs of the Companies were looked after by Shri V.P. Gopalakrishnan Nair who was the Managing Director & CEO (Indian Operations), till end of 1997 and thereafter by Shri Sunil Kumar, Chief Executive Officer, from 1st January, 1998 onwards. 4) That during the years 1997 and 1999-2000 the Appellant Companies faced large-scale la....
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.... than four hours when the Companies were under lock out. 6) Given the nature of export business in which the group is involved there are bound to be left over, rejects, seconds etc. and the Group Companies in India took the help of associate companies to market the rejected /cancelled goods due to delay, quality complaints etc. with regard to the products from time to time. Disposal of such rejected goods which bear registered label of the buyers is not a normal commercial transaction. Stock buyers for rejected garments are not readily available in India. 7) The assistance of Dubai Associates were taken for the disposal of the seconds generated by rejections, delays etc. Our associate companies have agreed to help us by sending raw materials without payment. Such unpaid imports exceed the unpaid exports. We have requested Reserve Bank of India for a set off of unpaid exports against unpaid imports. 8) That the total amount of foreign exchange due for remittance exceeded the proceeds pending realisation and the proposals were submitted by the Group to the R.B.I. in 1999 to allow set off of the amounts pending realisation against the payable amount....
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....had been proceeding against the foreign buyers and it is the appellant who had sustained heavy financial loss which was supported with authenticated evidences such as certified statements issued by Authorised Dealer. The authority below miserably failed to appreciate this fact and proceeded against the appellant. Further, the appellant could have opted to buy foreign exchange at a higher rate for make import remittances, as there is no restrictions to make import payments. However, the appellant preferred to save the exchange rate and also want to save the bank charges and commissions for the Companies here which will be a substantial amount. Hence he preferred a setoff which was permitted in the past by RBI and permissible as per the existing provisions in the Exchange Control Manual. Had the appellant want to take money as alleged, he could have preferred to take it legally as Commissions and marketing expenses which is permissible as per ECM. The appellant herein submits that he had never preferred any such claims. lt is also submitted that there is no Foreign Exchange Loss to the Country. 12) The appellant submits that the authority below ought to have found that the a....
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....he then Managing Director to take necessary steps to realize the bills due. Nowhere in the impugned order this aspect of the case has been considered by the authority below and his order proceeds on the premise as if the appellant was in charge of the affairs of the companies. It is settled law that when a contention is advanced before a quasi-judicial authority he is bound to consider the same and pass orders on merit. Nowhere in the order it is stated that the appellant was instrumental in causing any loss to the Government. Therefore the order passed against the appellant by the authority below is in gross violation of the principles of natural justice and therefore without jurisdiction. 16) The appellant submits that he had never instructed the companies in Cochin to honour the import bills due to his companies abroad towards the import and was always trying to help the companies in Cochin to tide over its financial problems. This clearly spells out the genuine and bonafide intention of the appellant. The appellant submits that he never had any malafide intention to take away the money due to him and hold the payments due to his companies in Cochin. There is no evidenc....
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....tance he has entered into an apprehension that the export proceeds might have been realised by M/s. Trend Setters Ltd., Ajman. The appellant vehemently denies the allegation made by the authority below which was only a mere assumption without any bonafideness. Not only that, the said apprehension is based on no material, it is clear from the records produced before the authority below that the noticees had been proceeding against the foreign buyers and it is the appellant who had sustained heavy financial loss which was supported with authenticated evidences. The authority below miserably failed to appreciate this fact and proceeded against the appellant. 20) The authority below has scornfully rejected the contention of the appellant that request for set off/ write off was pending before the Reserve Bank of India stating that the application was submitted in 1999. The appellant produced documents to prove that the said application is under active consideration of the Reserve Bank of India even now and to substantiate the same the latest communications received by the appellant from the Reserve Bank of India were produced before the authority below. His unwarranted conclusi....
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.... only foreign exchange gain and not loss to the country. All the appellants claims were supported with documentary proof which was annexed with the original appeal and subsequent additional statements. All the issues mentioned above resulting in serious violation of Fundamental Rights of the petitioner. In the circumstances it is submitted that the SCN's itself will not stand against the appellant herein. WRITTEN SUBMISSIONS ON BEHALF OF BALAKRISHNAN (APPEAL NO.603/2203) filed on 18.07.2018 1) The appellant had filed appeal against the order No.SDE(SSB)/iv/36- 40/2003 dated 30.09.2003 passed by the Special Director, Enforcement Directorate imposing a penalty of Rs. 3,00,000/- in the matter of non-realisation of export proceeds by the Company M/s. Intimate Apparels Pvt. Ltd. in which the appellant was Director from 11.01.1995 to 03.01.1998. The appellant was a Paid Executive and held directorship based on the direction from the Employer. 2) The Company had faced lot of labour problems in the year 1996 and in 1997 had been under lock out consequent to an illegal strike and company suffered huge loss and sustained damages due to an outbreak of fire accident while ....
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....e during the period 1992 to 1997 whereas the appellant became Director of the Companies only after 01.01.1997. 5) With reference to the proviso to sub-section (1) of Section 68 of Foreign Exchange Regulation Act, 1973 the appellant submitted that the contravention, if any, took place without his knowledge. 6) It is settled law that when contentions are advanced before a quasijudicial authority he is bound to consider the same and pass orders on merit. Nowhere in the order it is stated that the appellant was instrumental in causing any loss to the Government. Therefore the order passed against the appellant by the authority below is in gross violation of the principles of natural justice and therefore without jurisdiction. All the issues mentioned above resulting in serious violation of Fundamental Rights of the petitioner. WRITTEN SUBMISSIONS ON BEHALF OF SUNIL KUMAR.S (APPEAL NO.555/2003) filed on 18.07.2018 1) The Appellant above named, being aggrieved by the findings and order passed by the Special Director of Enforcement, Directorate of Enforcement, New Delhi thereby imposing personal penalties upon Appellant Rs. 5,00,000/- with regard to Memorandu....
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....provided in the Exchange Control Manual, traced out the misplaced documents like Bill of Entry, Shipping Bills, etc. ever since he assumed charge as CEO on 01.01.1998. This fact was not at all appreciated by the Respondent. 6) The Companies of which the appellant was the Chief Executive Officer was wound up by the Hon'ble High Court of Kerala as per its order dated 20.03.2001 in C.P.Nos.1, 4 and 5 of 1998. Under Section 446 of the Companies Act, 1956 any proceedings against a company under liquidation can be initiated or pursued only with the leave of the Company Court. This was specifically pointed out at the time of personal hearing to the respondent and the copy of the winding up order was submitted to him. In the impugned order he was completely feigned ignorance of the said facts and therefore the order passed is illegal. 7) As far as the appellant is concerned there was no lethargy or inaction on his part. It was his consistent case that he was in no way involved in the non-realization of export bills in question because those bills related to the period 1992-1997 whereas he took charge as Chief Executive Officer of the companies only on 01.01.1998. After ta....
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....out any money. foreign exchange outflow when the company faced acute financial problems. e) The petitioners have asked RBI to set off against accounts receivable and RBI allowed in one company and other applications under consideration then only enforcement taken over the subject and the petitioners have well submit doc with evidence and proof. f) There is no foreign exchange loss to the country. And by non-payment of promoter companies the country gain foreign exchange giving hard ship to his companies and subsequently closed. g) All this happen due to illegal strikes and the petitioner have filed case against Kerala government. h) RBI allows upto 5% of export turnover towards commission or other expenses which these companies are not taken. So allegations made are incorrect. i) Important the M.D. at the time of the incidence passed away and some lawyers fighting the case Kerala government claims also passed away. j) Current M.D. is facing brain tumors and Auto immune disorders and able to manage and as soon as these cases are over want to strike off these companies which no more in function otherwise. The appellants in supp....
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....of day-to-day business of the companies should not be held liable for contravention of any provisions of law by the Director who is responsible for the conduct of day-to-day business of the companies. The Respondent has filed the written synopsis on dated 12.10.2020. In the said written synopsis they have reiterated the facts which were reflected in the impugned order and Show Cause Notices. In addition to above, they have referred to the orders passed in Writ Petitions filed before the Hon'ble High Court of Kerala bearing WP(C) No.16446/2009 filed by Shri V.P. Gopalakrishnan Nair i.e. the deceased appellant, WP(C) No.25536/2009 filed by Shri Sebastian Chokkattu, WP(C) No.27244/2009 filed by Shri Biju Thomas, WP(C) No.22304/2009 filed by Shri Sunil Kumar, WP(C) No.6994/2010 filed by Shri Balakrishnan B., WP(C) 29496/2009 & WP(C) No.10807/2018 filed by Shri Sunil Kumar. It is contended by the respondent that in WP(C) No. 10807/2018 filed by Shri Sunil Kumar, the Hon'ble Kerala High Court vide judgment dated 20.09.2017. i. W.P.(C) No. 16446/2009 - Shri V.P. Gopalakrishnan Nair Vs. Special Director and others: This writ petition was disposed by the Hon'ble High Court vi....
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....ty Collector (R.R) decided that Rs. 10,05,000/- due from the petitioner is liable to be recovered from him. Against this order, the petitioner has filed W.P(C) No.10807/2018 before the Hon'ble High Court of Kerala, with prayer to stay all further proceedings of revenue recovery. The said writ petition is pending. Heard both sides and perused the materials available on record. From the facts as revealed from the record it appears that the Trend Setters Group of Companies namely M/s. Trend Setters Instyle India Ltd., M/s. Mode Creazone India Pvt. Ltd., M/s. Trend Designs Ltd. & M/s. Intimate Apparels (P) Ltd. were carrying on business from the Cochin Export Processing Zone as 100% export oriented units and that the group commenced business in 1990 with M/s. Trend Setters Instyle India Ltd. and were exporting readymade garments to USA, Canada, UAE, Hong Kong, etc. The raw materials for the production of garments were procured from Punjab, Surat, etc., and also imports fabrics/accessories from Korea, Hong Kong and U.A.E. It is the contention of the appellants that the appellant Shri Sebastian Chokkattu, Trend Setters Group was an NRI, based in Ajman, UAE from where he was also carry....
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....me failed to realise export proceeds. From the aforesaid it is very clear that the Trend Setters Group of Companies had made export of readymade garments and imported fabrics/accessories to and from foreign countries stated above respectively. It is also clear and undisputed fact that the Trend Setters Group of Companies have failed to realise the substantial proportion of export proceeds as stated above and also failed to make payments of imported goods bills made during the 1992 to 1997. From the records it appears that the Trend Setters Group of Companies had requested the RBI to write off/ set off the export proceeds against the amount to be paid towards the goods imported from the foreign countries. During the course of arguments a specific question was put to the learned counsel for the appellants whether the RBI has passed any order writing off of the export proceeds and/ or setting off the import bills with export proceeds. The answer of the learned counsel was in negative. No documents have been placed on record showing that the RBI has written off or setting off the export proceeds/ import bills except one letter of RBI dated 17.09.1996 in which the Reserve Bank of ....
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....e provisions allegedly contravened are as below: "Sections in the Foreign Exchange Regulation Act, 1973 Section 8. Restrictions on dealing in foreign exchange.- (3) Where any foreign exchange is acquired by any person, other than an authorised dealer or a money-changer, for any particular purpose, or where any person has been permitted conditionally to acquire foreign exchange, the said person shall not use the foreign exchange so acquired otherwise than for that purpose or, as the case may be, fail to comply with any condition to which the permission granted to him is subject, and where any foreign exchange so acquired cannot be so used or the conditions cannot be complied with the said person shall, within a period of thirty days from the date on which he comes to know that such foreign exchange cannot be so used or the conditions cannot be complied with, sell the foreign exchange to an authorised dealer or to a money-changer. (4) For the avoidance of doubt, it is hereby declared that where a person acquires foreign exchange for sending or bringing into India any goods but sends or brings no such goods or does not send or bring goods of a value....
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....is proved by the person who has sold or is entitled to sell the goods or to procure the sale thereof, that such person has not taken all reasonable steps to receive or recover the payment for the goods as aforesaid and he shall accordingly be presumed to have contravened the provisions of sub-section (2). Section 68. Offences by companies.- (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. (2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of a....
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....arly basis, to the office of Reserve Bank under whose jurisdiction the authorised dealer is situated. (iv) In case an importer does not furnish the Exchange Control copy of Bill of Entry within three months from the date of remittance (or within prescribed period as provided in paragraph 7A.10), the authorised dealer should issue a reminder to the importer asking him to produce it forthwith. If there is still no response, a reminder by registered post with acknowledgment due should be issued not later than one month from the date of the first reminder. (v) Authorised dealers should forward to Reserve Bank a statement as at the end of each calendar quarter in form BEF furnishing details of import transactions in respect of which the importers have defaulted in submission of Exchange Control copies of Bills of Entry within a period of 21 days from the date of issue of registered (acknowledgment due) reminder. The quarterly statement should be submitted to Reserve Bank within 15 days from the end of the quarter to which the statement relates. In respect of remittances, these Trend Setters Group of Companies had failed to submit Bill of Entry as evidence for actual....
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....of export proceeds and remittances of payment towards import of goods. Admittedly the period of contraventions was from 1992 to 1997. It has come from the statement of aforesaid appellants that Shri V.P. Gopalakrishnan Nair was the Managing Director of the Trend Setters Group, who was looking after the day-to-day business affairs of the companies and responsible for the conduct of the business. The Adjudicating Authority has imposed total penalty of Rs. 14,05,000/- on Shri V.P. Gopalkrishnan Nair, who had challenged the imposition of aforesaid penalty before this Tribunal vide appeal no.FPA-FE- 602/CHN/2003 and it is revealed from the record that during the pendency of his appeal it was informed by his counsel Shri Dev Prakash on 03.08.2017 that he has expired on 09.12.2015 by way of filing of Death Certificate. On 18.01.2018 the said learned counsel for the appellant submitted before this Tribunal that the appeal against Shri V.P. Gopalkrishnan Nair may be allowed to be abated as legal representatives are not coming forward for substitution of the deceased appellant. The said appeal has been dismissed for default on 09.01.2019 by the Division Bench of this Tribunal. The Adjudic....
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....ation of Shri V.P. Gopalakrishnan Nair. It has come on record that Shri V.P. Gopalakrishnan Nair was looking after the day-to-day affairs of the company and he was the Director of this company till 11.07.1995 and thereafter Shri B. Balakrishnan became the Director from 11.07.1995 to 1997 by stepping in the shoe of Shri V.P. Gopalakrishnan Nair and thus was in-charge of and responsible to the said company for the conduct of the business of the company at the time when the aforesaid exports were made. Therefore, there is no illegality in the impugned order in holding Shri B. Balakrishnan as one of the contravener as alleged and the impugned order does not call for any interference as the penalty of Rs. 4,00,000/- imposed on him is just, proper and proportionate. SHRI BIJU THOMAS (APPEAL NO.657/CHN/2003) It is pleaded by Shri Biju Thomas that he was an NRI Director of the said group of companies based in Ajman, U.A.E. The Adjudicating Authority has imposed a total penalty of Rs. 10,05,000/- on Shri Biju Thomas. It is also pleaded by Shri Biju Thomas, the appellant that he was no way involved in the non-realisation of export bills in question because he was an NRI and was based a....
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....ns and imposition of penalties are erroneous and not legal, hence, quashed and set aside. SHRI S. SUNIL KUMAR (APPEAL NO.555/CHN/2003) Shri S. Sunil Kumar, the appellant has been found charged under SCNs I-IV and found guilty by the Adjudicating Authority and a total sum of Rs. 10,05,000/- have been imposed as penalty on him for contraventions under Sections 8(3) & 8 (4), Sections 18(2) & 18(3) read with Section 68 (2) of FERA, 1973, the Central Government Notifications dated 01.01.1974 and Paragraph 7A-20 of RBI Exchange Control Manual Vol-I, 1993 Edition. It has come on record that Shri S. Sunil Kumar, appellant has joined the Trend Setters Group of Companies as Chief Executive Director only in the year 1998. There is nothing on record that this appellant was working in any other capacity in the said Group of Companies. Admittedly, the period of contraventions is from 1992 to 1997. There is also nothing on record to substantiate that this appellant was in anyway concerned with day-to-day business affairs of the said Group of Companies during the period 1992-1997. Therefore, attributing any allegation against the appellant Shri S. Sunil Kumar for the contraventions whi....