TMI Blog2019 (3) TMI 1517X X X X Extracts X X X X X X X X Extracts X X X X ..... avit in this regard. In para 5 of the said Affidavit, at pg. 4 it is clarified that the 3 Directors were not in-charge of Exports. Mr. Buckle the 3rd Director was not even a Director during the relevant period. (He took charge of the office with effect from 1.1.93 when the exports are within the period 1982 to 1991.) (See para 3(i) at pg. 2 of the said affidavit). The details regarding the other two Directors are also set out in the said Affidavit. In the Show Cause Notice dated 25.11.1993 only the names of the aforesaid 3 Directors are mentioned. Their names are included only on account they being Directors. No further allegation or statement is made as to ‘how’ they were in-charge and were responsible to the Company for the conduct of business of the Company in relation to such exports and the recovery of the amounts in relation thereto, as contemplated under Section 68. It is settled law that mere repetition of the language of the Section in the Show Cause Notice is not enough. Unless it is specifically stated as to how the said Directors are responsible and in-charge of, as contemplated in Section 68. In the light of settled law, the impugned order with regard to penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exports consist of an extremely wide range of products including, Tea, Coffee, Marine products, Soaps and Cosmetics, Caster Oil, Basmati Rice, Mushrooms. Out of its said total exports of ₹ 967/- crores between 1982 and 1991, which is the period under consideration in the Show Cause Notice, the Appellant Company has realised all export sale proceeds, except an amount of ₹ 2.95 crores as stated in the Show Cause Notice. 5. There is no denial that the Appellant Company has thus realised about 99.7% of its total export sales and it is only in respect of an insignificant fraction of about 0.3% of its export sales. It was stated by the appellant it was due to unavoidable circumstances, it is unable to recover the export sale proceeds for reasons totally beyond control, despite the best efforts made by the Appellant Company. 6. It was submitted that bad and doubtful debts to a certain extent are an inevitable incidence of every trading business and particularly export business where the customer is located thousands of miles away and is subject to a different legal system and the law enforcement authorities who may not always co-operate with the Indian Exporters. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t due to transfer of the concerned officer of the Appellant Company, namely Mr. Robin Banerjee, G.M.(Commercial), Exports Division, at Mumbai effective from 1.7.1999 and take over of the said assignment by another officer of the company, namely, Mr. V.Ramesh as G.M.(Commercial), Exports Division, based at Chennai, from 1.7.1999. Mr. Robin Banerjee soon thereafter resigned and left the service of the Appellant Company and Mr. V.Ramesh being new to this job and being based at Chennai, instead of at Mumbai, took some time to settle down in taking charge of his wider responsibilities. These organizational changes also resulted in certain amount of dislocation and communication gap leading to the Appellant s not attending the scheduled hearing on 6.9.1999. 11. It is alleged without prejudice thatthe Appellant ought to have appeared at the hearing on 6.9.1999. It was the case of the Appellant that the Special Director ought not to have proceeded to pass the order more than 10 months after the last hearing but atleast should have made some efforts to ascertain the factual position in the light of the matter having been adjourned from time to time over a period of more than 6 years and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany for Food Stuff Trading and their bankers, namely, Rasheed, Bank, to make the payment as per the L/C Terms. Both the company and the bankers continued to maintain that the payments are under process. However, the U.N. imposed an embargo on all exports as well as imports to Iraq and froze all the assets and the bank accounts of Iraq. The customer, finally informed on 1.11.1990 that their assets have been frozen and they are unable to make the payment. The bankers, namely, Rasheed Bank formally communicated on 15.12.1990 that due to sanctions imposed, payments are pending till further notice and that they are not liable for any interest. Copies of the correspondences between the Appellant Company and the Authorised Dealer, Iraq Customer and their Bankers are annexed and marked herein as Annexure 14 (Collectively) . The U.N. embargo has continued right upto today. So long as the U.N. embargo continues, it is absolutely impossible for the Appellant Company to take any steps or action whatsoever for recovery of its export sale proceeds from Iraq. This position was fully appreciated by the Export Credit Guarantee Corporation of India (A Government of India Undertaking) which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst payment to the Bank. However, the Buyer C J International, fraudulently obtained possession of the Shipping documents and took delivery of the goods without making payment to the Appellant s Bank. Thereafter, the Buyer disappeared and has not been traceable. Appreciating this position, ECGC released the amount of ₹ 5 lakhs to the Appellant Company against these outstanding thereby acknowledging the position that it was not possible for the Appellant Company to recover and realize these export sale proceeds. The Appellant Company has also submitted its details/clarifications to THE RESERVE BANK OF INDIA, Mumbai and the Authorised Dealers for GR waiver vide Appellant s letters dated 25.1.95, 8.7.99 and 25.8.99 respectively. The said Application for waiver is still pending. However, without at all considering the abovementioned facts, the impugned order imposes penalty on the Appellant Company in respect of this amount also. E) Miscellaneous unrealizable amounts aggregating to ₹ 11,11,967/- These represent exports made during the period 1983 to 1991 to numerous parties and are individually of very small value. The reasons for the non-realisation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Company has received a letter dated 16.8.2000 from ECGC, confirming the deliberations of the last meeting of the Indo-Iraq Joint Commission held on 19.7.1999. A copy of the said letter is already filed to as Annexure 15. It was alleged that the Appellant has been seriously prejudiced by reason of the erroneous assumption made by the Special Director as to the alleged failure on the part of the Appellant to take legal steps for the recovery of the export sale proceeds notwithstanding the U.N. Embargo which continues till date. 15. In nutshell the case of appellant was that as far as Iraq and USSR it was impractical and fruitless for the Exporter to file any legal proceedings. No such practical option was ever available to the Exporters including the Appellant, Filing of legal proceedings for export recoveries were impossible as this has to be seen in the context of whether it was at all practical and possible to do so. The only option available was to pursue the matter through the Government of India, which the Appellant has been doing in the Iraqi matter. The Appellant submits that the question as to whether the Exporter has taken reasonable steps to realize the Foreign Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank of India, vide its letter dated 7.8.1999, had advised the Authorised Dealers to consider the write off, of the overdue export bills of the Appellant Company under para 6C.14 of the Exchange Control Manual 1993. The Appellant Company had provided various clarifications to the Authorised Dealers on 25.8.1999. Based on the clarifications, Punjab National Bank, one of the Authorised Dealers gave approval for write off, of Export Earnings outstandings of ₹ 1,56,364/- on 6.9.1999. The approval for the write off, of the balance outstandings, is still awaited from the other two Authorised Dealers, namely, State Bank of India and Allahabad Bank to whom the applications had already been made. Copies of the three letters dated 8.7.1999, addressed to the Reserve Bank of India, through the three (3) Authorised Dealers, copies of letters dated 7.8.1999 addressed by the Reserve Bank of India to the Authorised Dealers and copies of the three letters, dated 25.8.1999 from the Appellant Company giving clarifications to the Authorised Dealers are filed as Annexure 18(colly), Annexure 19(colly) and Annexure 20 (colly) , respectively. 18. However, despite of the same, the appellant hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble opportunity has been passed wherein it has been stated that the Appellant Company tried to pass the responsibility to another person, other than three notices in the Show Cause Notice. 19.4. The Director of a company cannot be held responsible if he didn t have the knowledge of the alleged contravention and had exercised all due diligence to prevent the commission of such an offense. The Respondent in the facts and circumstances of the present case could not be said to have the knowledge of the alleged contravention. He had exercised all due diligence to prevent the commission of such an offense and the alleged omission cannot be attributable to any neglect on the part of the Director. 20. In the case of Shri S.M. Dutta, Director of Hindustan Lever Ltd. who has filed the appeal. 20.1. It was submitted by him that, in any event, he had no personal involvement whatsoever with the exports made by Hindustan Lever Ltd., or the realization of the export sale proceeds. These matters were entrusted to the Export Department of Hindustan Lever Ltd. and the same were attended to by competent professional Managers who worked under the control of the then Export Director/Vice Presi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocate the old records,which are about 12 years old and in the absence of the relevant file containing the said letter, were unable to give any further details regarding the said approval. However, they were of the view that such letters conveying the approval of waiver are only sent to parties on the basis of the orders passed by the appropriate authority by officers of the bank who are responsible senior officers and would not write any such letter in the absence of any approval from the appropriate authority. No official who was functioning in the said branch of the State Bank of India in the year 2006 is available after a lapse of about 12 years. It was also deposed that the aforesaid letter dated 11.10.2006 itself categorically records that the approval for writing off the captioned export collection bills was granted on 27.09.2006. When such specific particulars are already set out in the said letter which is signed by the officer in charge of the rank of Assistant General Manager [Exports]. There would be no cause for any doubt that such approval was in fact given. During its regular dealings with regard to exports, they interact mainly with the authorised dealers and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the authorised dealer, the State Bank of India itself. A true copy of the said Circular dated 31.03.2000 is filed as Annexure-D alongwith an additional affidavit. It is clear from the said letter that write off was duly granted in respect of the exports to Iraq in the sum of ₹ 2.01 crores. 28. Even, otherwise, the appellant has made out a solid case on merit in respect of the exports to Iraq, keeping in view of the serious political disturbances prevailing in Iraq for a long period of time, even the Rasheed Bank which is the National Bank of Iraq, from whom the amount was to be recovered against LCs, was unable to make payment as it was not operational. As such, in any event, such amounts were not recoverable and no default can even be alleged in respect thereof, on the part of the Appellant. 29. Once the major amount related to recoveries from Iraq to the extent of ₹ 2.01 Crores in respect of non-recovery of this amount, waiver has been granted. The remaining amount which could not be recovered, is only about Rs.41 Lakhs which constitutes a negligible amount of 0.0423% of the total exports of ₹ 967 Crores during the said period. 30. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out. 36. It is the admitted position that a letter issued by RBI as late as 18.2.2009 sent in reply to the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f outstanding amounts against exports, is granted , no penalty could be imposed. There is no breach till the expiry of the extended period and (ii) no penalty can be imposed in respect of outstanding amount against exports where applications for waiver are pending. a. Rajnis International Vs. Director of Enforcement- 1995 (83) Taxman 25 (para 7) 7. It is clear from the findings of the learned Additional Director that although he took into consideration the fact that the appellant had applied for the write off the disputed GRI forms, he fee into error in treating that facts as of no consequence for the reason that the write off had not been granted by the RBI till then. It is to be borne in mind that section 18(2) itself contemplates that a person may seek permission of the RBI to do or refrain from doing anything or take or refrain from taking any action which has the specified effect. If such permission is sought and given by the RBI, there would be no contravention of section 18(2) even if export proceeds are not realised. If such permission is not sought at all, or if sought, the same has been refused, the exporter will be guilty of contravention of section 18( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onrealisation of the export proceeds. The Special Director failed to take into consideration without any cogent reasons the evidence of writing off of 49 GRIs and the receipt of export proceeds in respect of two GRIs. The initiation of adjudication proceedings was not at all called for in respect of the 49 GRIs where the RBI had permitted writing off and it was premature to initiate proceedings in respect of the remaining GRIs where permission for writing off was already under consideration of the RBI. The Special Director had failed to appreciate that if the permission of the RBI under section 18(2) has been sought, it was impossible to determine whether any contravention of section 18(2) has been committed, unless and until the RBI gives its decision, because the charge of contravention will depend on the RBI s refusal to give its permission. The Special Director erred in ignoring, the fact that the export proceeds in respect of two GRIs had already been realised. Therefore, the impugned order, so far as it related to contravention mentioned under SCN No. 1, was set aside. In regard to the charges contained in SCN No. II. The position was similar to that of the outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case. 14. It would further be seen that a contravention of section 18(2) occurs when a person, except with the permission of the RBI, does or refrains from doing or takes or refrains from taking any action which causes or results in delayed payment or non-payment of export proceeds. In view thereof if the Reserve Bank grants its approval for any delayed payment, or for writing off of the outstanding export proceeds-full or part-or otherwise treats the realisation, part realisation or non-realisation of export proceeds as in order there will be no contravention of section 18(2). What is material is the decision of the RBI whether it conveyed as approval , permission , exemption , direction or simply as advice. 15. If we consider the facts of present appeals in the light of the provisions of section 18(2) and (3) as discussed above, it will be seen that appellant application for extension of time for payment of the export proceeds were under consideration of the RBI. Shri Khanwilkar has, therefore, rightly contended that the initiation of the adjudication proceeding was totally untenable in law. Moreover, in respect of outstanding co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decide whether permission may or may not be granted under section 29(1) of the Act. The Act makes its exclusive privilege and function. On other authority is vested with any power nor may it assume to itself the power to decide the question whether permission may or may not be granted or whether it ought or ought not to have been granted. The question may not be permitted to be raised either directly or collaterally . (p. 1412) These observations, though made while dealing with the permission granted under section 29(1) of the Act, will equally apply to the approval given by the RBI under any of the provisions of the Act. d. Taj Traders Vs. Director of Enforcement- 1995 (80) Taxman 103 (Paras 10 and 11) 10. To put, it in similar language what section 18(2) provides, insofar as relevant for the purposes of these appeals, is that if the full export value of the goods has not been realised within the prescribed period or if the realisation of full export value of the goods has been delayed beyond the prescribed period, it would amount to contravention of section 18(2) unless the exporter proves that he has taken all reasonable steps to realise the out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission or the extension of realisation period and thereupon a contravention is presumed, in terms of section 18(3), merely on the fact of non-realisation of full amount of export proceeds, it is open to the exporter to rebut the presumption under section 18(3) by proving that he had taken all reasonable steps to realise the export proceeds and that the realisation remains outstanding in spite of such steps. If the exporter succeeds improving this he cannot be held guilty of contravention of the provisions of section 18(2).75 42. In view of the above case law, which was binding on the Special Director (ED) , we are of the considered view no penalty could be imposed in respect of outstanding recovery from Iraq for which extension of time had already been granted and the extended time was not yet over. No penalty could also have been imposed for outstanding amounts from other 5 countries in respect of which waiver application was pending . 43. In the light of above, the appeal filed in the appellant-Hindustan Lever Ltd. is allowed in the light of above said facts. 44. As mentioned a penalty of Rs.25 Lakhs was also imposed in respect of each of the 3 Directors [(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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