Madras High Court
P. Balasubramaniam vs The Appellate Tribunal For Foreign ... on 24 August, 2022
Author: N. Anand Venkatesh
Bench: N. Anand Venkatesh
W.P.Nos. 14300 & 14301 of 2009 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 24.08.2022
CORAM:
THE HONOURABLE Mr. JUSTICE N. ANAND VENKATESH
W.P.Nos. 14300 & 14301 of 2009
&
M.P. Nos.1 to 3 of 2009 in W.P. No.14300 of 2009
&
M.P. Nos.1 to 3 of 2009 in W.P. No.14301 of 2009
P. Balasubramaniam
Managing Director,
City Knitting Company (P) Ltd.,
No.7-B, Duraisamy Puram 2nd street
Tiruppur ... Petitioner in W.P. No.14300/2009
City Knitting Company (P) Ltd.,
No.7-B, Duraisamy Puram 2nd street
Tiruppur,
Rep by its Managing Director
P. Balasubramaniam ... Petitioner in W.P. No.14301/2009
vs
1. The Appellate Tribunal for Foreign Exchange,
4th Floor, B-Wing, Janpath Bhavan,
Janpath, New Delhi.
2. The Special Director of Enforcement
Enforcement Directorate,
Government of India, New Delhi.
3. The General Manager,
Reserve Bank of India
https://www.mhc.tn.gov.in/judis
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W.P.Nos. 14300 & 14301 of 2009 of 2015
Exchange Control Department,
Fort Glacis, Rajaji Salai, Chennai. ...Respondents in both W.Ps.
Common Prayer : Writ Petitions filed under Article 226 of the
Constitution of India praying to issue a Writ of Certiorarified Mandamus
or any other writ order or direction in the nature of writ calling for the
records relating the order of the 1st respondent in Appeal Nos.25 &
26/2004 respectively dated 9.6.2009 confirming the order of the 2nd
respondent in SDE(SSB)/IV/58/2003 dated 25.11.2003 and to quash the
same and consequently direct the 3rd respondent to pass order on the
petitioner application dated 6.11.2003 for write-off the unrealised export
proceeds/bills made during the year 1991-94 as submitted and
recommended to the 3rd respondent by the authorized foreign exchange
dealer viz. Indian Overseas Bank, Kumaran Road, Tiruppur, on
28.10.2008 as stated in their letter dated 29.10.2008 to the petitioner.
In both W.Ps
For Petitioner : Mr. Vadivel Murugan
for Mr. R.G. Narendhiran
For R1 to R2 : Mr. N. Ramesh
Special Public Prosecutor
For R3 : Mr. T. Poornam
COMMON ORDER
The issue involved in both the Writ Petitions are common and hence they are taken up together, heard and disposed of through this common order.
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2. The company and the Managing Director of the Company have filed these Writ Petitions challenging the impugned order passed by the 1st respondent, dated 09.06.2009, confirming the order of the second respondent dated 25.11.2003 and for a consequential direction to direct the 3rd respondent to consider the application submitted by the petitioner on 06.11.2003 and to write off the unrealised export bills as recommended by the Foreign Exchange dealer on 28.10.2008.
3. The case of the petitioners is that they were engaged in the business of knitted garments. During the period between 1991 to 1994, the petitioners had exported knitted garments to various countries to the tune of about Rs.13,70,66,219/-. Out of the total exports, the petitioners were able to realise Foreign exchange to the tune of Rs.12,60,91,787/-. The petitioners, in spite of their best efforts, were not able to recover the balance amount of Rs.1,09,96,031/-. The unrealised amount was pertaining to exports that were made to the purchasers belonging to Germany, Dubai and UK. Even though the Managing Director had personally visited those Countries and took steps to realise the pending export proceeds, all the efforts went in vain. Accordingly, the unrealised debts were treated as bad debts.
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4. The 2nd respondent issued a show cause notice dated 03.05.2002 to the petitioners under the relevant provisions of the Foreign Exchange Management Act, 1999 and the relevant Rules, calling upon the petitioners to show cause as to why action should not be initiated for the contravention of the provisions under Section 18(2) read with Section 18(3) and both the provisions read with Section 68 of the Foreign Exchange Regulation Act, 1973 ( hereinafter called as the “Act”).
5. The petitioners gave a reply to the said show cause notice on 06.06.2002 and explained the reason for non realisation of the sum of Rs.1,09,96,031/-. The petitioners further stated that the unrealised portion worked out to only 8% of the total exports and the balance amount has been realised and the petitioners have sufficiently contributed to the Foreign Exchange realisation. The petitioners further took a stand that if they proceed further to recover the unrealised amount, they will be incurring more expenses than the outstanding amount and therefore a conscious decision was taken to write off the debts. Accordingly, the petitioners sought for personal hearing and for closing the complaint against them.
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6. The petitioners, thereafter, through letter dated 24.04.2003, gave up/surrendered their duty draw back to the Commissioner of Customs and this was requested to be adjusted towards the non-realised foreign exchange. Parallelly, the petitioners also contacted their Foreign Exchange dealer, namely, Indian Overseas Bank, and the Bank through their letter dated 06.11.2003, recommended to the Reserve Bank of India (RBI) to write off the un-realised Foreign Exchange as a special case since all the steps taken by the Company and the Managing Director to realise the outstanding went in vain.
7. The 2nd respondent, after giving an opportunity to the petitioner and after hearing the authorised representative who appeared on behalf of the petitioners, passed the impugned order dated 25.11.2003 wherein a specific finding was given to the effect that the petitioners did not take necessary steps for realising the foreign exchange and the petitioners have taken steps for writing off the debts only after the proceedings were initiated by the Enforcement Directorate. Accordingly, penalty was imposed both against the Company as well as the Managing Director. https://www.mhc.tn.gov.in/judis 5/23 W.P.Nos. 14300 & 14301 of 2009 of 2015
8. Aggrieved by the order passed by the 2nd respondent, both the petitioners filed appeal before the Appellate Tribunal, namely the 1st respondent. The 1st respondent, through impugned order dated 09.06.2009, confirmed the order passed by the 2nd respondent and reiterated the findings that no sufficient steps were taken by the petitioners to repatriate the foreign exchange and the petitioners did not satisfy the requirements under the provisions of the Act by taking reasonable steps and did not rebut the presumption of contravention of the provisions of the Act and accordingly, the imposition of penalty was confirmed and the balance penalty amount was directed to be recovered from the petitioners. Aggrieved by the same, the present Writ Petitions have been filed before this Court.
9. The 2nd respondent has filed a common counter affidavit. The relevant portion in the counter affidavit is extracted hereunder.
"5. The respondent most respectfully submits that the above Writ Petitions are not maintainable in law for the reason that against the order of the Appellate Tribunal for Foreign Exchange the right of appeal is available for the petitioners under Section 54 of FERA, 1973. Under the scheme of the Act the contravention of the provisions are https://www.mhc.tn.gov.in/judis 6/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 adjudicated under Section 50(1) against which the right of appeal is provided under Section 52 and further appeal to the Hon'ble High Court under Section 54 of FERA, 1973. Thus the petitioners have not invoked the correct jurisdiction of this Hon'ble Court and instead of filing C.M.A., they have wrongly chosen to file these writ petitions. As the statutory remedy of filing appeal under Section 54 before this Hon'ble Court is available the Writ petitions are not maintainable in law."
10. The 3rd respondent has also filed a counter affidavit. The relevant portions in the counter affidavit are extracted hereunder:
"5. It is submitted that before traversing the allegations made by the petitioner in the affidavit filed in support of the Writ Petition, this respondent submits that:
The Reserve Bank is a statutory body established under the provisions of the Reserve Bank of India Act, 1934, for the purpose of regulating the issue of bank notes and the keeping of Reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. In order to enable the Reserve Bank to carry out the avowed object of the RBI Act, subsequent law was enacted vesting the powers https://www.mhc.tn.gov.in/judis 7/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 with the Reserve Bank to keep and conserve Foreign Exchange Reserves in the monetary interest of the country. The Foreign Exchange Regulation Act, 1973 which was in force at that time is applicable to the issues arising under the present Writ Petition. FERA was enacted in 1973 and regulations were issued dealing with certain kinds of payments in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency, for the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development of the country.
6. Save and except what is specifically admitted herein, all the averments made in the Affidavit filed in support of the Writ Petition, which are inconsistent with the submissions made in this Affidavit are denied. Without prejudice to the submissions made hereinabove, but relying upon the same, the Reserve Bank craves leave to deal with the averments made in the Affidavit filed in support of the Writ Petition.
7. I submit that the petitioner is stated to be an exporter at Tiruppur in export market and has been dealing its export business transactions with Indian Overseas Bank as its Authorised Dealer Bank (AD Bank). This statement/averment contained in the Affidavit filed in https://www.mhc.tn.gov.in/judis 8/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 support of the petition are not within the knowledge of the Reserve Bank. As regulator, the Reserve Bank is not interfering or dealing with the day-to-day business transactions of the petitioner with its Authorised Dealer.
The Authorised Dealer of the petitioner deals with the day-
to-day business transactions of the petitioner. The
petitioner may be put to strict proof of the
averment/statement made in the afidavit it filed in support of the Writ Petition.
8. It is submitted that Indian Overseas Bank, the Authorised Dealer (AD) bank of the petitioner had approached the Reserve Bank through letter dated October 28, 2008, requesting for writing-off of unrealised export bills, pertaining to the petitioner. The proceedings related to the unrealised export bills of the petitioner was pending before the 1st respondent Appellate Tribunal. Therefore, the Reserve Bank had vide letter dated November 9,2008, requested the AD bank to submit the letter dated November 19, 2008, requested the AD bank to submit the latest position thereof. The AD bank, vide letter dated march 16, 2009, informed the Reserve Bank that the proceedings before the First respondent was postponed to enable the Reserve Bank to provide a decision in the matter. https://www.mhc.tn.gov.in/judis 9/23 W.P.Nos. 14300 & 14301 of 2009 of 2015
9. It is submitted that the Master Circular No.9 dated July 1, 2008, on Export of Goods and Services provides at Sub- paragraph (e) of paragraph B21 (i) that the case should not be the subject matter pending in any civil suit or criminal case to consider the case for write off by the Reserve Bank. In terms of sub paragraph (f), the exporter should not have come to the adverse notice of the Enforcement Directorate or the Central Bureau of Investigation or any such other law enforcement agency to consider the request for write off by the Reserve Bank. Hence, the request for write off, was not considered by the Reserve Bank, as the petitioner was under investigation of the Directorate of Enforcement, pursuant to show cause notice dated May 03, 2002 (SCN) and the proceedings were pending before the 1st respondent. Therefore, the AD bank was informed accordingly, vide letter dated April 15, 2009 of the Reserve Bank.
11. Heard Mr. Vadivel Murugan, learned counsel appearing for the petitioner, Mr. N. Ramesh,learned Special Public Prosecutor appearing for the 1st and 2nd respondents and Mr. T. Poornam, learned counsel appearing for the 3rd respondent.
12. This Court has carefully considered the submissions made on either side and the materials available on record. https://www.mhc.tn.gov.in/judis 10/23 W.P.Nos. 14300 & 14301 of 2009 of 2015
13. The main grounds that have been raised in these Writ Petitions are,
(a) Writ Petitions are not maintainable in view of an appellate remedy available under Section 54 of the Act.
(b) The alternative remedy is not a bar since the impugned orders passed by the 1st and 2nd respondents are in violation of principles of natural justice.
(c) The petitioner had taken necessary steps to repatriate foreign exchange and had rebutted the presumption under Section 18(3) of the Act and in spite of the same, the respondents erroneously imposed penalty against the petitioners.
(d) Even though the proceedings were initiated for contravening of Section 18(2) and 18(3) of the Act, these provisions have to be read along with Section 18(1) of the Act and hence, there is a bar in imposing a penalty under Section 50 of Act.
(e) The authorised dealer had also recommended for writing off the unrecovered portion considering the track record of the petitioner and in spite of the same, the respondents failed to consider the same and proceeded to impose the penalty against the petitioners. https://www.mhc.tn.gov.in/judis 11/23 W.P.Nos. 14300 & 14301 of 2009 of 2015
(f) The impugned proceeding requires interference of this Court and Reserve Bank of India should be directed to act upon the application submitted by the petitioners seeking for writing off the unrecovered foreign exchange based on the recommendations made by the authorised dealer.
14. In the present case, the petitioners had an effective, efficacious and alternative remedy under Section 54 of the Act to file an appeal against the order passed by the 1st respondent. However, the petitioners have chosen to file these Writ Petitions in the year 2009. The Writ Petitions were entertained and were kept pending for the last 13 years and hence it will not be appropriate to dismiss these Writ Petitions on the ground of availability of alternative remedy at this length of time. Useful reference can be made to the judgement of the Division Bench in Ramachandra Rexins Private Ltd., vs. Customs, Excise and Gold (Control) Appellate Tribunal, Chennai reported in 2009 4 MLJ 417. Reference can also be made to the latest judgment of the Division Bench in Sri Ram Samaj vs. The Commissioner, Hindu Religious and Charitable Endowments Deparment and others in W.A. No.1057 of 2022 dated 27.04.2022.
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15. The learned counsel for the petitioners submitted that these Writ Petitions are maintainable since there was violation of principles of natural justice. This Court is not in agreement with the said submission since the petitioners were provided with sufficient opportunity and only thereafter, the impugned order came to be passed by the 1st and 2nd respondents. In spite of the same, this Court is not inclined to dismiss these Writ Petitions on the ground of availability of alternative remedy only for the reason stated supra.
16. In the present case, there is no dispute with regard to the fact that the petitioners did not repatriate foreign exchange to the tune of Rs.1,09,96,031/- for the exports that were done during the period from 1991-92 to 1994.
17. Section 18(2) read with Section 18(3) of the Act specifically provides that where the prescribed period has expired and repatriation of the foreign exchange for the goods exported does not take place, it shall be presumed that the exporter has not taken all reasonable steps to receive or recover the payment for the goods and the exporter shall be https://www.mhc.tn.gov.in/judis 13/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 presumed to have contravened Section 18(2) of the Act. The presumption that is raised under Section 18(3) of the Act is a rebuttable presumption and it will always be left open to the exporter to substantiate that he has taken all reasonable steps to repatriate the foreign exchange and in spite of the same, he was not able to recover the amount. The period that has been prescribed under Rule 8 of the Foreign Exchange Regulation Rules, 1974, is 6 months from the date of the shipment of the goods. Rule 8 specifically provides for the period within which the export value of the goods should be realised. The said Rule also gives an option to the exporter to apply to Reserve Bank of India seeking for extension of time and the Reserve Bank of India for sufficient and reasonable cause shown, can extend the period for repatriation of the foreign exchange.
18. The Hon'ble Supreme Court in Bharat Carpets vs. Director, Enforcement Directorate reported in 2008 8 SCC 142 has made it abundantly clear that an exporter who has not obtained any general or special permission of Reserve Bank of India, is required to repatriate the sale proceeds within the prescribed period of 6 months. Whenever the prescribed period expires without repatriation of the export proceeds, https://www.mhc.tn.gov.in/judis 14/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 Section 18(3) of the Act creates a rebuttable legal presumption reverse burden against the exporter to the effect that the exporter had not taken requisite steps to obtain repatriation of the payment.
19. In view of the relevant provision of the Act and the clarity given by the Apex Court, this Court has to see if the petitioners were able to dislodge the presumption that was put against them by proving that they took reasonable steps for recovering the amount.
20. A careful reading of the order passed by the 2nd respondent and as confirmed by the 1st respondent shows that the petitioners have treated the non recovery of the foreign exchange like a regular business transaction within the country. The petitioners took a stand that insofar as reasonable steps for realisation of the export outstanding is concerned, it only requires a subjective analysis and according to the petitioners, the export was done to a wrong customer and the realisation prospects of export proceeds are bleak and the petitioners thought it fit not to spend money on litigation which would cost more than the outstanding amounts recoverable by the petitioners. The petitioners failed to take note of the fact that such grounds may be tenable in a https://www.mhc.tn.gov.in/judis 15/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 regular business transaction within the country. Insofar as repatriation of foreign exchange is concerned, it involves the economic development of the country and therefore, the exporter is expected to take sufficient steps for the recovery of the amount and place materials to show the steps taken by them for repatriation of the foreign exchange. Unless this is done, the presumption will go against the exporter and the authorities will be left with no other option except to impose penalty.
21. This Court wanted to satisfy itself as to what steps were taken by the petitioners for recovering the export proceeds. The only material that is available in this regard are the fax messages that are said to have been sent to the customers asking them to pay the amounts for the goods supplied to them. At the best, these fax messages can only be considered as an initial request made by the petitioners reminding the customers about the amounts payable by them. Except these fax messages, there is no other material placed before this Court or before the concerned authority to show that the petitioners took effective steps to realise the export proceeds.
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22. It is not necessary that in every case litigation must be initiated for the recovery of the export proceeds. It obviously involves a business decision since initiating legal proceedings in the foreign country may involve heavy cost and an exporter may think that the cost involved for the litigation may exceed the outstanding that is recoverable from the customers to whom the goods were supplied. However, the exporter is expected to take serious effective steps to recover the unrealised export proceeds and must also express their mind to the persons to whom the supplies were made that they will resort to legal proceedings for recovering the amount. In other words, the steps taken by the exporter must sufficiently indicate the defaulter that the exporter is seriously pursuing for the recovery of the unrealised export proceeds. There is no material available to satisfy this Court that the petitioners had taken effectual and emphatic steps to recover /repatriate the foreign exchange dues.
23. Considering the volume of business done by the petitioners during the relevant point of time, the books of accounts of the petitioner company should have been audited. The financial report of the company https://www.mhc.tn.gov.in/judis 17/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 will definitely reveal the net receivables and the period during which the unrealised portion was decided to be treated as a bad debt. Whenever such a decision is taken, the auditor makes a separate note as to what steps were taken for repatriation of the foreign exchange and why it has come to a stage where such effort must be given up and the debt must be treated as a bad debt. If the petitioners were serious enough, there was absolutely no difficulty for the petitioners to produce the Books of Accounts and the Auditor's report in this regard. This material would have given a clear picture as to the efforts taken by the petitioner and the ultimate decision to treat the unrecovered money as bad debts.
24. It is clear from the above discussion that the petitioners were not able to rebut the presumption under Section 18(3) of the Act and hence the 1st and 2nd respondents were perfectly right in holding that the petitioners did not take reasonable steps for recovering the payment for the goods supplied and hence legally presumed that the petitioners have contravened the provisions of Section 18(2) of the Act.
25. Insofar as the contention of the learned counsel for the petitioners that the penalty under Section 50 of the Act cannot be https://www.mhc.tn.gov.in/judis 18/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 imposed against the petitioners is concerned, it is wholly unsustainable. A careful reading of Section 50 of the Act shows that penalty can be imposed against any person who contravenes any of the provisions of the Act. The only exception that has been given under this provision is Section 13, Section 18(1)(a), 18(A) and 19(1)(a). According to the learned counsel for the petitioners, Section 18(2) and Section 18(3) cannot be read in isolation and it has to be necessarily read along with Section 18(1)(a) of the Act. Section 18(1)(a) of the Act deals with the declaration of the value of goods that are exported. The exporter has to declare the full export value of the goods. Section 18(1)(b) of the Act gives powers to the Central Government to authorise export of goods for a value less than what is declared. That apart, it also gives the Reserve Bank of India to grant exemption in appropriate cases. This provision has nothing to do with Sections 18(2) and 18(3) of the Act, which deals with repatriation of foreign exchange. These provisions stand independently and there is no requirement to read these provisions along with Section 18(1)(a) of the Act. Hence the contention of the learned counsel for the petitioners to the effect that penalty cannot be imposed under Section 50 of the Act for contravention of Section 18(2) of the Act, has no legs to stand.
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26. The learned counsel for the petitioners took a stand that the authorised dealer had also recommended for writing off the unrealised foreign exchange and the Reserve Bank of India did not take any decision in this regard. It is clear from the counter affidavit filed by the Reserve Bank of India that there is a master circular dated 01.07.2008, which makes it very clear that RBI cannot consider writing off in a case where the exporter has already come to the adverse notice of the Enforcement Directorate or any other law enforcement agency. In the present case, only after the show-cause notice was issued to the petitioners, the petitioners started taking steps to make a application to the RBI seeking for writing off the debts. Under such circumstances, RBI was perfectly right in not acting upon the recommendations made by the authorised dealer. This issue was also considered by the Appellate Tribunal and it was held against the petitioners.
27. The upshot of the above discussion leads to the only conclusion that the impugned orders passed by the 1st and 2nd respondents do not require the interference of this Court. The request made by the petitioners to direct the RBI to write off the debts cannot be countenanced since taking such steps are of no use to an exporter who https://www.mhc.tn.gov.in/judis 20/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 has already contravened the provisions of the Act and who has already come to the adverse notice of the Enforcement Directorate. The moment the petitioners realise that they will not be able to repatriate the foreign exchange, they should have taken steps through their authorised dealer and requested for writing off the debts by the RBI. Unfortunately, even this step was not taken by the petitioners and they took everything for granted. In the teeth of the provisions under Section 18(2) and 18(3) of the Act, there is no scope to construe these provisions leniently, more particularly since the Act was brought in with an objective to improve the foreign exchange reserves of the country and to maintain increased flow of foreign exchange to ensure promotion of trade.
28. In the result, there is no ground to interfere with the impugned orders passed by the respondents and accordingly, both the Writ Petitions stand dismissed. No costs. Consequently connected miscellaneous petitions are closed.
24.08.2022 Internet : Yes / No Index: Yes / No Speaking order / Non speaking order Bga https://www.mhc.tn.gov.in/judis 21/23 W.P.Nos. 14300 & 14301 of 2009 of 2015 To
1. The Appellate Tribunal for Foreign Exchange, 4th Floor, B-Wing, Janpath Bhavan, Janpath, New Delhi.
2. The Special Director of Enforcement Enforcement Directorate, Government of India, New Delhi.
3. The General Manager, Reserve Bank of India Exchange Control Department, Fort Glacis, Rajaji Salai, Chennai.
National Highway - 45, Tambaram, Chennai 600 045.
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bga W.P.Nos. 14300 & 14301 of 2009 & M.P. Nos.1 to 3 of 2009 in W.P. No.14300 of 2009 & M.P. Nos.1 to 3 of 2009 in W.P. No.14301 of 2009 24.08.2022 https://www.mhc.tn.gov.in/judis 23/23