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TMI Blog2020 (11) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... shnan 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 issued to M/s. Trend Setters Instyle India Ltd. for contraventio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air, 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 recovery. I am not prepared to give credence to the set-off proposals claimed to have been filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and also importing fabrics/accessories from Korea, Hong Kong and U.A.E. and that appellant Shri Sebastian Chokkattu, an NRI, was the Chairman & Director of the said Group of Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted 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 Customs' records as well as the records of CEPZ, Customs, Kochi and that when the buyer was requested to reimburse the amount (the full amount was already received by M/s. Wide Way Text ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 labour unrest, consequent lock outs due to which the Appellant Companies failed to execute export orders in time and further the output and quality of the products also suffered a setback. Similarly the Companies suffered hug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociate 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 amounts for imports and the said proposal was pending for decision with the R.B.I. 9) It is in fact the appellant who had sustained huge financial loss personally being the principal promoter of the companies. The Appellant had brought in Rs. 5.8 Crores towards promote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant is no way benefited by any of the contravention alleged in the SCN's. The authority below should have appreciated the fact that the appellant had never taken any effort to take away his import bills due to his companies or his investments made which were on fully repatriable basis. If he has done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 evidence on record to prove that the appellant was in any way benefited by any contravention of the provisions of the Foreign Exchange Regulations Act. No mensrea is established or even alleged against the appellant. 17) The appellant further submits that he had submitted adequate documentary evidence to Reserve Bank of India to prove tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 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 conclusion that the Reserve Bank of India will not accept the claim of the appellant is wholly unjustified. 21) It is relevant to mention that Ext.Al- which establishes that there is a precedent that RBI had allowed setoff in a case as per its order number EC.CHN.X. 1401.43.20.117/6-97 dated 17.01.1996 which is marked as Ext.Al in the present appeal. This itself establishes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under lock out. 3) 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Memorandum SCN-I, Rs. 3, 00,000/- with regard to Memorandum SCN-II, Rs. 2,00,000/- with regard to Memorandum SCN-III and Rs. 5,000/- with regard to Memorandum SCN-IV under Section 68 of FERA Act, 1973. Being aggrieved thereby, the Appellant had filed the Memorandum of Appeal No.555/2003 which is now pending before the Hon'ble Tribunal. 2) It was the consistent case of the appellant all along that the export in question in respect of which non-realisation of export proceeds alleged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 taking over charge he took all possible steps to realize the export proceeds pending realization in the previous years and had sent notices to the creditors, instituted legal proceedings wherever possible and sought the help of the Commercial Attache, Indian Embassy, Washington and the U.S. Ambassador to India, traced out the available documents and submitted to RBI etc. He also filed suit against M/s. K. Mart Corporation in the Sub-Court, Ernakulam. All these facts were submitted to the respondent in the statements filed, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 support of their contentions further filed additional short written submissions on 03.11.2020 which are reproduced hereinbelow; 1) The appellants received letters from RBI in July 2003 stating that they are not in a position to take decisions as the case is pending with Enforcement Directorate, New Delhi. It is clearly shows the appellants letter references numbers of applications are with them. 2) As per this letter the appellants have asked the appellants banks to resubmit application as per exim policy along with audited account/ statements, consent from importers, and export bills for set off. 3) A copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebastian 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 vide judgement dated 15-06-2009, directing the second respondent (the Hon'ble Appellate Tribunal for Foreign Exchange) to consider the appeal preferred by the petitioner in accordance with law and pass appropriate orders thereon, after giving an opportunity for hearing, as expeditiously as possible; Till further orders are passed on appeal all coercive proceedings for recovery of the penalty as taken against the petitioner, was to be kept in abeyance till final order was passed on the appeal filed before the Hon'ble Appellate Tribunal for Foreign Exchange. ii. WP(C) No.25536/2009 - Shri Sebastian Chokkattu Vs. Special Director and others. iii. WP(C) No.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nits 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 carrying on business in the name of M/s. Trend Setters Ltd., Ajman and that the other appellant Shri Biju Thomas is the another NRI Director in the companies and that the group was having factories in Sri Lanka & Ajman and offices in Hong Kong & Taiwan and that the day-to-day business affairs of the companies were stated to be looked after by Shri V.P. Gopalakrishnan Nair, Managing Director till 1997 and by Shri Sunil Kumar, Chief Executive Director from January 1998 onwards and that the companies have bank accounts in Indian Bank, Shanmugam Road, Kochi and State Bank of Travancore, Overseas Branch, Kochi. It is an admitted fact that the period involved in the present proceedings is from 1992 to 1997. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. 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 India, Exchange Control Department sent a letter to the Assistant General Manager, State Bank of Travancore, Overseas Branch, Kochi, regarding follow up of export outstanding M/s. Trend Designs Ltd. in the said letter dated 17.09.1996 the approval of RBI was conveyed for realizing the 22 GR Forms/ 11 import invoices totaling US $ 1.25 Lakhs adjusting the existing dues against each other and allowing a write off of US $ 22,365.77 in respect of pending export bills. This approval appears to have been a conditional one as it is conveyed in the same letter that "Please, however, note that the write off has been allowed subject surrender of proportionate export benefits, if any avail by the company". This cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 representing the foreign exchange acquired, within a reasonable time or sends or brings any goods of a kind, quality or quantity different from that specified by him at the time of acquisition of the foreign exchange, such person shall, unless the contrary is proved, be presumed not to have been able to use the foreign exchange for the purpose for which he acquired it or, as the case may be, to have used the foreign exchange so acquired otherwise than for the purposes for which it was acquired. Section 18. Payment for exported goods.- (2) Where any export of goods, to which a notification under clause (a) of sub-section (1) applies, has been made, no person shall, except with the permission of the Reserve Bank, do or refrain from doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing 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 any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purposes of this section- (i) "company" means anybody corporate and includes a firm or other association of individuals; and (ii) "director", in relation to a firm, means a partner in the firm." It is also alleged that the Trend Setters Group of Companies and the appellants have failed to comply with the conditions subject to which the foreign exchange was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 import of the goods. Rather as revealed from the investigations, the Companies had been importing fabrics/accessories from Korea, Hong Kong & U.A.E. and that Bills of Entry in respect of remittances of Rs. 5,84,106/- & Rs. 5,77,830/- on 08.08.1997 & 03.07.1997 respectively by Trend Designs Ltd. were already submitted to the authorised dealer for submission of the same to the RBI, and in respect of remittances of Rs. 16,59,044/- on 02.11.1997 by M/s. Mode Creazone India Ltd., the relevant Bill of entry 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 is also seen from the record that M/s. Trend Designs Ltd. did not submit B/E in respect of remittance of US $ 5,659/- to M/s. Wide Way Textiles Ltd., Hong Kong against Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... krishnan 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 Adjudicating Authority has imposed penalties of Rs. 35,00,000/- on M/s. Trend Setters Instyle Pvt. Ltd., Rs. 15,00,000/-on M/s. Mode Creazone India Pvt. Ltd., Rs. Rs. 25,000/- on M/s. Trend Designs Ltd. and Rs. 20,00,000/- on M/s. Intimate Apparels (P) Ltd. SHRI SEBASTIAN CHOKKATTU (APPEAL NO.604/CHN/2003) The appellant Shri Sebastian Chokkattu was the Chairman of the Trend Setters Group of Companies and was overall in-charge of the same. It has also come on record that he was also a Director of the said group of companies. The Adjudicating Authority has imposed a total penalty of Rs. 42,15,000/- on Shri Sebastian Chokkattu. There is nothing on record that he has taken any sufficient steps/action to realise the export proceeds and that on the grounds stated in the Show Cause Notices and the reasons cited in the impugned order it is clear that exports were made and diverted. The nonrealisation of export proceeds cannot be said to be beyond the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed 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 at U.A.E. and was not directly involved in the day-to-day affairs of the Trend Setters Group of Companies and those non-realised bills related to the period 1992-1997 there was a full time Director in-charge of Indian Operations to look after the affairs of those group of companies and he was informed that they had taken all possible steps to realise the export proceeds pending realisation in the previous years and had sent notices to the creditors, instituted legal proceedings wherever possible and sought the help of the Commercial Attache, Indian Embassy, Washington and the U.S. Ambassador to India and has also filed suit against M/s. K. Mart Corporation in the Sub- Court, Ernakulam. On perusal of the records made available in the appeal, there is nothing on record to show that the appellants including Shri Biju Thomas or the Trend Setters Group of Companies have approached the Commercial Attache, Indian Embassy, Washington and the U.S. Ambassador to In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 which were committed prior to his joining the group of companies is unwarranted. The appellant has filed the judgments in the matters of Kavita Dogra (supra) & M.M. Shah (supra) that are also applicable in the present case. In view of the above, the appellant Shri S. Sunil Kumar cannot be held liable for contraventions of Sections 8(3) & 8 (4) of FERA, 1973 read with Paragraph 7A-20 of RBI Exchange Control Manual Vol-I,1993 Edition, Sections 18(2) & 18(3) read with Section 68 of FERA, 1973, the Central Government Notifications dated 01.01.1974. In view of the above, the findings of the Adjudicating Authority holding Shri S. Sunil Kumar liable for the aforesaid contraventions and imposition of penalties are erroneous in law and not legal, hence, quashed and set aside. In the light of aforesaid discussions and findings it is ordered that: (a) The appeal filed by Shri Sebastian Chokkattu is dismissed. (b) The appeal filed by Shri B. Balakrishnan is dismissed. (c) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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