IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON TUESDAY, THE 27TH OCTOBER 2009 / 5TH KARTHIKA 1931 MFA.No. 82 of 2004() -------------------- APPEAL NO.144/2002 of APPELLATE TRIBUNAL FOR FOREIGN EXCHANGE, NEW DELHI .................... APPELLANT(S): -------------- UNION OF INDIA, REP.BY DIRECTORATE OF ENFORCEMENT,(FOREIGN EXCHANGE MANAGEMENT ACT),CENTRAL GOVERNMENT, OFFICE COMPLEX, C.WING III FLOOR, POONKULAM, VELLAYANI P.O. THIRUVANANTHAPURAM 695 522. BY ADV. SRI.P.S.SREEDHARAN PILLAI, SCGSC SRI.JOHN VARGHESE, SCGSC SRI.P.PARAMESWARAN NAIR,ASST.SOLICITOR SRI.P.J.PHILIP, C.G.C RESPONDENT(S): --------------- M/S.PARIKH BROTHERS, JAWAHAR ROAD, MATTANCHERRY, KOCHI - 2. BY ADV. SRI.JOSEPH KODIANTHARA FOR RES SRI.MATHEWS K.UTHUPPACHAN THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 27/10/2009, ALONG WITH MFA NO. 150 OF 2004, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: P.R.RAMAN & P.R.RAMACHANDRA MENON ------------------------------- M.F.A. Nos. 82 and 150 of 2004 ------------------------------- Dated this the 27th October, 2009 J U D G M E N T Raman, J. Union of India, represented by Directorate of Enforcement, is the appellant in both these cases. These appeals arise out of the common order, dated 28.1.2003, passed by the Appellate Tribunal for Foreign Exchange, New Delhi, in Appeal Nos. 144 and 145 of 2002. The respondent in M.F.A.No.82 of 2004 is the firm, on which the respondent in M.F.A.No.150 of 2004 is the Managing Partner. 2. The matter relates to penalty proceedings initiated against the firm, M/s.Parikh Brothers, as also the partner by the adjudicating authority, whereby an amount of Rs.6 lakhs was imposed by way of penalty on the firm and an amount of Rs.3 lakhs was imposed as penalty to the Managing Partner, alleging contravention of Sections 18(2) and 18(3) of the Foreign M.F.A.Nos.82 & 150 of 2004 2 Exchange Regulation Act, 1973, hereinafter after referred to as 'FERA' for short. 3. The respondent, M/s.Parekh Brothers, had made export of Dry Ginger valued at U.S.$ 25200/- ON 31.10.1995 under Letter of Credit opened with the Punjab National Bank. The export was made in two lots to a foreign buyer against confirmed/irrevocable Letter of Credit. Pursuant to the export made, the authorised dealer, viz., the Bank, credited the proceeds with regard to these exports made and consequently credit was made to the account of the firm. Later, the Bankers of the Firm intimated the firm that their corresponding bank, M/s. Banque Indosuez, Geneva, has rejected the acceptance of documents, on the plea of discrepancy and accordingly, Foreign Correspondent Bank has asked the Bankers of the Firm to reverse the entry and to remit back the amount. The Punjab National Bank, after the expiry of a period of two years, without consulting the firm, debited the account of the firm to a tune of M.F.A.Nos.82 & 150 of 2004 3 U.S.$ 25,200/- and remitted back the same to M/s. Banque Indosuez, Geneva. 4. The Reserve Bank of India, Exchange Control Department, intimated the Enforcement Directorate of Trivandrum that the respondent firm has made the export as aforesaid, and that the proceeds realised by the Punjab National Bank has to be refunded to the overseas Bank, by the authorised dealer due to quality dispute and non acceptance of the goods by the overseas buyer. It was also reported by the Reserve Bank of India that the commodity was auctioned by the port authorities in USA and the proceeds were appropriated towards their dues like demurrage, storage etc. The Reserve Bank of India further stated that the matter was under legal proceedings between the exporter and the bankers and that the exporters did not intend to take any follow up actions with the buyer and that they have not approached the Reserve Bank for extension of time limit. 6. The adjudicating authorities based on such information, proceeded to impose the penalty invoking the M.F.A.Nos.82 & 150 of 2004 4 provisions contained under Sections 18(1) and 18(2) of the FERA and accordingly, in the culmination of the proceedings ended with penalty of Rs.6 lakhs and Rs.3 lakhs respectively on the firm as also the Managing Partner. It was held by the adjudicating authority that it was the duty of the exporter to follow up the matter further, instead of making attempts to enter into litigation with the authorised dealer on unethical grounds. It also went on to hold that it was totally incorrect and against the practice in the area of international trade to suggest that the authorised dealer should have taken prior approval from the exporter to remit back money, in a case where the documents were rejected by the buyer abroad. Therefore, the adjudicating authority was of the view that the exporter has to rectify the defective documents owing to which the goods were not accepted by the foreign banker. 7. As against the order imposing penalty, both the firm as also the Managing Partner has preferred two separate appeals and the Tribunal disposed of the same by a common M.F.A.Nos.82 & 150 of 2004 5 order. The Tribunal, in these appeals, reversed the finding of the adjudicating authority and held that the question as to whether the Exporter is to rectify the defective documents owing to which the goods were not accepted by the foreign banker, was not an issue in the domain of the adjudicating officer to adjudicate. But on the admitted facts and the export having been completed, after obtaining a Letter of Credit in the Punjab National Bank, the authorised dealer, who on being satisfied, credited the amount to the account of the firm on 1.11.1995, this is not a case where there is any non-receipt of the export value. It is by a subsequent act, viz., the reversion of the entry made by the Punjab National Bank, which led to the dispute between the parties, which was not within the adjudicatory domain of the authorities. Though the appellate authority also found that the goods having been auctioned at a foreign port, thereby, there is no export in the eyes of law, it is not supported by any reason. M.F.A.Nos.82 & 150 of 2004 6 8. The learned counsel appearing for the appellant would contend that based on the declaration made, when virtually amounts could not be realised towards the export value, as a result of the reversal of the credit entry made in the account of the exporter, on the premise that documents were not accepted by the foreign banker, necessarily there arise an obligation on the part of the exporter to rectify the defective documents and to take steps to realise the proceeds of the export value. In so far as that is not done, it is contended that Sections 18(1)(a)(ii) and 18(3) of the FERA is squarely attracted. 9. Per contra, the learned counsel appearing on behalf of the respondent would support the order passed by the appellate authority. 10. We have heard both sides. On the admitted facts, exports were made after obtaining a Letter of Credit with the Punjab National Bank. Therefore, once the bank is satisfied about the documents and they have credited the amount, it is not a case where there is any non-receipt of the export value. It M.F.A.Nos.82 & 150 of 2004 7 is, on 25.6.1997, two years after this, that the authorised dealer has reversed the account and paid back the amount to the foreign bank. In the circumstances, whether the action on the part of the bank, in reversing the amount and paying back the amount to the foreign bank was justified or not, is not a matter for the adjudicating authority to decide. That is purely a dispute inter se between the exporter and the bank. Suppose, admittedly proceedings were initiated by the bank for realisation of the amount from the exporter by taking proceedings before the Debt Recovery Tribunal. Let us visualise the situation where if the bank ultimately fails in realising the amount, on the finding that the reversal of the account and paying back the amount is not legal or proper, that too, without obtaining previous consent with the exporter, then can it be said that the exporter has committed any violation of the provisions contained under Sections 18(1) and (2) of the FERA. The answer can only be in the negative, viz., that no action what so ever could have been taken against the exporter. On the other hand, even if the Bank ultimately succeeds in realising any amount from the exporter, M.F.A.Nos.82 & 150 of 2004 8 based on an adjudicatory proceedings initiated separately, in the factual situation, when the amount have already been credited to the account of the exporter, thereafter the amount, if at all is alleged to be due, is only because of the reversal of the account and not due to non-receipt of the amount towards export value. Either way, the provisions under Sections 18(1) or (2) is not attracted. Therefore, the conclusion reached by the Tribunal is correct, though for our own reasons, as stated above. Both the appeals fail, and accordingly, dismissed. P.R.RAMAN, JUDGE P.R.RAMACHANDRA MENON, JUDGE. nj.