Dmt 1 wpl1663-11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGNAL CIVIL JURISDICTION WRIT PETITION (L) NO. 1663 OF 2011 M/s. Minar Exports. ..Petitioner. versus Enforcement Committee & Ors. ..Respondents. ..... Mr. Kunal Cheema with Mr. Datta Mane and Apoorv Singh for the Petitioner. Mr. Kevic Setalvad, Sr. Adv., with Mr. G. Hariharan i/by Dr. T.C. Kaushik for Respondent Nos. 2 & 4. Mr. Zubin Behram Kamdin with Mr. Rohan Cama and Mr. Satchit Bavalakar i/by Mulla & Mulla & CBC for Respondent No. 3. ...... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. 04 October 2011. Dmt 2 wpl1663-11 ORAL JUDGMENT (PER DR. D.Y. CHANDRACHUD, J): Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. 2. The Petitioner has challenged a decision of the Enforcement Committee constituted under a notification issued by the Government of India in the Ministry of Textiles on 12 November 1999 and confirmed in appeal by the Enforcement Appellate Committee. Under the decision, the Petitioner has been subjected to two demands; (i) A demand in the amount of Rs. 7.10 crores; and (ii) A demand in the amount of Rs. 3.81 crores on a finding of fact. The finding of fact is that (i) The Petitioner having obtained a quota and Visa under the GR I Category which was readily available without any premium, actually exported items covered under the GR II Category which was widely sought after and commanded a premium in Dmt 3 wpl1663-11 the market by forging Visas obtained under the GR I category and making them appear as Visas obtained under GR II category; and (ii) Having obtained a quota under the GR II category, the Petitioner did not undertake actual exports but fabricated bank realisation certificates of the Bombay Mercantile Cooperative Bank for establishing the utilization of the quota. 3. Under the WTO agreement on Textiles and Clothings, export of certain textile product categories from India to the United States, member countries of the European Union and to Canada was circumscribed within specified annual quantitative restraints, called Textile Quota limits. The Union Government was regulating exports falling in such textile product categories through Export Entitlement (Quota) Policies which were notified under the provisions of the Exim Policy. On 12 November 1999 the Union Government, in the Ministry of Textiles, notified a policy for allotment of entitlements for the years 2000 to 2004 in respect of exports of yarn fabrics and made-ups items to U.S., Canada and to the European Union Dmt 4 wpl1663-11 under the Exim Policy for 1997 2002. Under the policy, the – Executive Director of the Cotton Textiles Export Promotion Council (TEXPROCIL) was appointed as the Quota Administering Authority. The authority issued Visas which mentioned the quantity entitlement of textiles which an exporter was entitled to export. When goods were shipped for export at Indian ports, quota endorsements were to be made containing, inter alia, besides the name of the exporter, details of the category or group, the FOB value and the validity period of the shipment. These were to be stamped by Texprocil on the proforma invoices furnished by the exporters. An endorsement was also required to be made at the Port of Destination of the exported textile products in order to ensure that the exporting country abided by the quantitative restraints under the bilateral agreement entered into between the exporting and importing countries. Consequently, once the quota level was attained, no further export was allowed from that country. Within the country, quotas were distributed amongst exporters in order to maximize foreign exchange Dmt 5 wpl1663-11 earnings. An exporter who obtained a quota but failed to export goods was required to compensate the exchequer for loss of foreign exchange. Texprocil tallied from time to time the statements received from the countries of destination to ensure that allotted quantities were exported. Briefs of shipment and of realisation of export proceeds were required to be submitted to Texprocil. Texprocil reconciled the briefs with what came to be known as namesake statements from the ‘ ’ foreign authorities, containing details of shipments cleared by them. 4. Sometime in November 2004, a little before the quota regime was to be abolished with effect from 31 December 2004, the Respondents obtained knowledge of the misconduct of the Petitioner upon which action came to be initiated. The case against the Petitioner, which has been found to be established, is two-fold :- (i) The Petitioner obtained a Quota and Visa Dmt 6 wpl1663-11 under the GR I category (which was easily and readily available without any premium) but actually exported items covered under GR II Category (consisting of Bed Linen/Bed Sheets/Pillow cases which were widely sought after and commanded a premium in the market) by forging Visas obtained under GR I Category to appear as Visas under GR II Category and; (ii) The Petitioner obtained a Quota under GR II Category (Bed Linen/Bed Sheets/Pillow cases); yet it did not undertake actual exports, but submitted false and forged bank documents while proving the utilization of the quota.” The Petitioner, who was exporting textile products under the Quota Policy for 2000 and 2004, was allotted quotas in respect of both of Group I and Group II textiles. Quotas for Group II Dmt 7 wpl1663-11 covered items such as Bed Linen which were in high demand. According to the allegation, the Petitioner forged export documents and utilized the quota allotted under Group I to actually export goods which fell in Group II. As a result, the quota which could have been legitimately utilized for exporting products falling in Group II was fully used up resulting in an embargo being imposed by the U.S. Authorities. All subsequent exports in Group II textile to the U.S. were prevented. Other legitimate exporters who could have utilized their allotted quotas in Group II were unable to fulfil their export contracts. Moreover the Petitioner, having obtained quotas under the Group I failed to fully utilize that quota which deprived the country of foreign exchange earnings. These facts came to light in October 2004 when details of exports in the namesake statements were verified with the details of ‘ ’ shipment permitted by Texprocil when it was noticed that there were wide variations between the quantities which were certified by Texprocil and those cleared by the U.S. Authorities. These discrepancies related to the allotment of quotas made to Dmt 8 wpl1663-11 the Petitioner. 5. By an order dated 23 November 2004 the Petitioner was temporarily debarred from making further exports pending investigation. Notices to show cause were issued to the Petitioner calling upon it to submit an explanation. During the course of the investigation, a letter was received on 20 December 2004 from the Bombay Mercantile Cooperative Bank alleging that there was a serious fraud and that the bank realization certificates upon which the Petitioner had obtained endorsements, had not been issued by the Bank. On 13 June 2005, an order was passed by the 1st Respondent by which the Petitioner was barred from making any further exports for a period of three years commencing from 23 November 2004. This order was confirmed in appeal on 16 November 2005. The Petitioner moved this Court together with seven other related concerns in an earlier set of seven petitions under Article 226 of the Constitution. Dmt 9 wpl1663-11 6. By a judgment dated 7 May 2010, a Division Bench of this Court noted that the Petitioner had not challenged the finding relating to the acts and omissions constituting “ foundation for debarment .” 1 Consequently the action of the authorities to debar the Petitioner from exporting textile products for a period of three years was held to be justifiable with reference to the provisions of Clause 17 (v) of the notification of the Union Ministry of Textiles dated 12 November 1999. Though the Division Bench upheld the debarment of the Petitioner for a period of three years, taking note of the fact that the foundation of fact forming the basis of the debarment had not been challenged, the Division Bench held that the notices to show cause contained no reference either to the subsequent notification dated 9 November 2004 or to the provisions of the Foreign Trade (Development and Regulation) Act, 1992. Consequently, this Court held that the orders impugned before it were liable to be set aside and the proceedings remitted back to the 1st Respondent for considering 1 Para 14 of the judgment Dmt 10 wpl1663-11 afresh the question as to whether payment of compensation could be ordered, penalties could be levied and directions to the Petitioner to deposit various amounts could be issued by the 1st Respondent together with a recommendation to the Director General of Foreign Trade to suspend the import export code number issued to the Petitioner. 7. The judgment of the Division Bench would indicate that what was left open for determination on remand was whether the 1st Respondent in the course of its adjudication had the power to impose a penalty, to order the payment of compensation and to issue recommendations to the Director General of Foreign Trade. After the order of remand was passed by this Court, a supplementary notice to show cause was issued by the Respondents on 4 August 2010. The notice laid bare the allegations made against the Petitioner in regard to the forgery of shipping documents and falsification of documents. The Petitioner was called upon to show cause as to why the following amounts should not be recovered in Dmt 11 wpl1663-11 terms of the notification dated 12 November 1999 and 9 November 2004 and under the Foreign Trade (Development and Regulation) Act, 1992.: (i) EMD in the amount of Rs. 3.10 crores (ii) Penalty computed at 25% of the EMD = 76.03 lacs. (iii) Penalty of Rs. 7.50 per sq. meters being the rate prevalent in market on the date on which the quotas were sold on the entire 7.57 million square meters of products falling in Category GR II textiles illegally exported amounting to Rs. 5.67 crores; and (iv) Penalty in the amount of Rs. 1.4 crores on (iii) above. Dmt 12 wpl1663-11 The Petitioner was afforded an opportunity to file its reply to the supplementary notice and was allowed an opportunity of being heard. 8. The Enforcement Committee by its order dated 15 November 2010 confirmed the demand as made in the notice to show cause. The order of the Enforcement Committee has been confirmed in appeal by the Enforcement Appellate Committee on 25 April 2011. 9. Learned Counsel appearing on behalf of the Petitioner in assailing the findings which have been arrived at in the orders passed by the Enforcement Committee and the Appellate Committee submitted that (i) The Enforcement Committee is not vested with power to demand compensation or to impose a penalty for breach of the condition subject to which a quota entitlement was allowed to the Petitioner; (ii) Under Section 11 of the Foreign Trade (Development and Regulation) Act, 1992. the power to impose a penalty is vested Dmt 13 wpl1663-11 with the Director General of Foreign Trade or to such officer to whom that power can be delegated by the Central Government; (iii) The Power of the Enforcement Committee is exhaustively defined in clause (v) of Para 17 of the notification dated 12 November 1999 that in cases where the Committee finds the exporters guilty of fraud or other irregularities, it is only entitled to debar the exporter from obtaining entitlements and participating in the Export Entitlement Distribution Scheme for a specified period; (iv) The demand for compensation and the levy of penalty is, ultra vires the powers of the Enforcement Committee under the notification; (v) Allegations of forgery and/or fabrication of evidence and of records can only be established after evidence is produced and there was no material before the Enforcement Committee to arrive at a finding of fact. In these circumstances, learned Counsel submitted that the order of the Enforcement Committee was in excess of jurisdiction and the Appellate Authority in confirming those findings has not acted in accordance with law. Dmt 14 wpl1663-11 10. On the other hand, it is urged on behalfe of the Respondents that : (i) The notification dated 12 November 1999 is issued by the Union Government in pursuance of the provisions of the Exim Policy and the statutory source of power is to be found in Section 3 (2) and Section 5 of the Foreign Trade (Development and Regulation) Act, 1992; (ii) The function of the Enforcement Committee is to deal with cases involving fraudulent activities, misrepresentation of facts and falsification of documents or forgery amongst other things in connection with obtaining, utilising or proving the utilization of quotas; (iii) The conferment of the power is all encompassing and is in the widest possible terms and when it deals with cases involving fraudulent activities or misrepresentation of facts, the Enforcement Committee must have all incidental and ancillary powers to deal with wrong doing; (iv) Para 17 (v) of the notification dated 12 November 1999 is not exhaustive of the powers of the Enforcement Committee. To hold that the Enforcement Committee merely has the power to debar an exporter from obtaining entitlements and from participating in Dmt 15 wpl1663-11 the entitlement scheme for a specified period, would defeat the object of the Act and would render the Enforcement Committee powerless to rectify the consequences of a wrong doing by an exporter; (v) Though the textile quota regime has been abolished with effect from 1 April 2005, the subsequent notification issued by the Union Government on 9 November 2004 makes it clear that the provisions of the earlier notification relating to the procedure to deal with quota malpractices and in regard to the forfeiture of earnest money deposits has been saved. Similarly, the subsequent notification makes it clear that any such procedure or remedy may be instituted, continued or enforced and any penalty or consequent punishment imposed as if the earlier notification had been in force. Moreover, it has been clarified that the provisions of the Foreign Trade (Development and Regulation) Act, 1992 would continue to be applicable; (vi) In the present case, a finding of fact has been recorded that the exporter had indulged in serious malpractices involving fabrication of documents. In the earlier round of proceedings before this Dmt 16 wpl1663-11 Court the debarment of the exporter was not contested and the facts on the basis of which the debarment was effected had not been questioned. In that view of the matter, the action which has been taken by the authorities falls within the purview of law and is intra vires. The rival submissions now fall for determination. 11. The Foreign Trade (Development and Regulation) Act, 1992 is an Act to provide for development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India and for matters connected therewith or incidental thereto. Section 3(1) empowers the Central Government by an order published in the Official Gazette to make provisions for the development and regulation of foreign trade by facilitating imports and increasing exports. Under sub-section (2) of Section 3, the Central Government may also by an order Published in the Official Gazette make provisions for prohibiting, restricting or otherwise regulating, in all cases Dmt 17 wpl1663-11 or in specified classes of cases and subject to such exceptions, if any, as may be made by or under the Order, the import or export of goods. Under Section 5, the Central Government is empowered from time to time to formulate and announce the export and import policy and to amend the policy. Section 7 stipulates that no person shall make any import or export except under an Importer-exporter Code Number granted by the Director-General or the officer authorised by him. Section 8 provides for suspension and cancellation of the Importer- exporter Code Number. Section 9 provides for issue, suspension and cancellation of licenses. Section 11(1) provides that no export or import shall be made by any person except in accordance with the Act or the rules and orders made thereunder and in accordance with the export import policy for the time being in force. Section 11(2) provides that where any person makes or abets or attempts to make any export or import in contravention of the Act, rules, orders or the policy, he shall be liable to a penalty of not less than ten thousand rupees and not more than five times the value of the goods in Dmt 18 wpl1663-11 respect of which any contravention is made or attempted to be made, whichever is more. Under Section 13 any penalty may be imposed or a confiscation can be adjudged under the Act by the Director-General or subject to such limits as may be specified, by such other officer as the Central Government may, by a notification in the Official Gazette, authorise in this behalf. Rule 14 of the Foreign Trade (Regulation) Rules, 1993 provides that no person shall make, sign or use or cause to be made, signed or used any declaration, statement or document for the purposes of obtaining a license or importing any goods knowing or having reason to believe that such declaration, statement or document is false in any material particular. 12. On 12 November 1999 the Union Government in the Ministry of Textiles issued a notification for the allotment of entitlements between 2000 and 2004 in respect of exports of Yarn Fabrics and Made-ups items to the U.S., Canada and the European Union. The notification, inter alia, provided in Para 17 the procedure to deal with quota malpractices by exporters. Dmt 19 wpl1663-11 Para 17(iii) stipulates as follows :- (iii) The Enforcement Committee will deal with cases involving the use of any one of the following, in connection with obtaining, extending, utilising or proving the utilisation of quotas :- (a) Any fraudulent activity (b) Any misrepresentation of facts (c) Any falsification of documents or forgery (d) Submission of post-dated cheques for extension of entitlements which are dishonoured on presentation to his bank.” (emphasis supplied) Clause (v) of Para 17 provides that in cases where the Dmt 20 wpl1663-11 Committee finds the exporter guilty of fraud or other irregularities, which are violative of any of the above provisions, the exporter may be debarred from obtaining entitlements and participating in the Export Entitlement Distribution Scheme for a specified period. An appeal is provided against the decision of the Enforcement Committee to an Appellate Committee. 13. Under the WTO agreement on textiles and clothings the textile quota regime was to stand completely abolished leading to a full integration of textiles and clothings into the GATT regime with effect from 1 January 2005. The earlier notification of 12 November 1999 was to be co-terminus with the end of the quota regime on 31 December 2004. The Union Government considered it necessary in the public interest and national interest that though the quota regime was to come to an end, to continue the applicability of the earlier notification with a view to (i) continue the appeal and review provisions in respect of EMD forfeiture orders, and (ii) continue Dmt 21 wpl1663-11 with the existing mechanism to deal with cases of non- performance and short performance of quota obligations. Consequently, by a subsequent notification dated 9 November 2004 it was provided that the cessation of the earlier notification shall not affect the residuary functions of the notification, particularly in certain specified matters. The relevant provisions in that regard were as follows :- (1) “ The cessation of Notification No. 1/129/99- Exports-I dated 12th November 1999 (including its amendments) and the predecessor Notifications concerning Yarn, Fabrics & Made-ups Export Entitlement (Quota) Policy on 31st December 2004 shall not affect the operation of the residuary functions of these Notifications, and in particular, of the following provisions contained therein:- a) Provisions relating to the Quota Administering Authorities (QAA) notified for implementation Dmt 22 wpl1663-11 of various provisions of the Quota policies. b) Provisions relating to the procedure to deal with quota malpractices by exporters. c) Provisions relating to the supervisory role of the Textile Commissioner. d) Provisions relating to appeal against forfeiture of EMD/BG/PDC. e) Provisions regarding forfeiture of Earnest Money Deposit (EMD), Bank Guarantee (BG) and Post Dated Cheques (PDC). (2) Apart from the above, any such proceeding or remedy may be instituted, continued or enforced and any such penalty, confiscation or punishment imposed or may be imposed or made as if the above Notifications had been in force. (3) The provisions of Foreign Trade (Development and Regulation) Act, 1992 No. 22 of 1992 would Dmt 23 wpl1663-11 continue to be applicable for the purposes of present notification.” 14. The issue before the Court is as to whether the Enforcement Committee constituted under the notification dated 12 November 1999 had the jurisdiction and power to demand compensation and to levy a penalty. Clause (iii) of Para 17 of the notification empowers the Committee to deal with cases “ ” involving the use of (i) fraudulent activity, (ii) misrepresentation of facts, (iii) falsification of documents or forgery and (iv) submission of post dated cheques for extension of entitlements which are dishonoured, in connection with obtaining, extending, utilising or proving the utilisation of quotas. The notification contains in its recital a statement that it was issued in pursuance of the provisions contained in the Exim Policy for 1997-2002. The statutory source of power for the issuance of the notification is traceable to sub-section (2) of Section 3 under which the Central Government is empowered to prohibit, restrict or regulate the import or export of goods in all cases Dmt 24 wpl1663-11 or any specified classes of cases and subject to such exceptions as it may make. Evidently, the object of the notification was to regulate the export of goods in certain specified classes of cases. The conferment of power on the Enforcement Committee is to deal with cases involving serious wrong doing in connection with the grant or utilisation of quotas. The words deal with have a broad connotation in law as was “ ” noticed in the judgment of the Supreme Court in Delhi Administration vs. Ram Singh. 2 This view has also been taken by the Supreme Court in the Constitution Bench judgment of Sachidananda Benerji v. Sitaram Agarwala 3 Deal with is an “ ” expression of wide import and ambit. When the quota policy confers the substantive power on the Enforcement Committee to deal with cases involving, inter alia, fraudulent activity, misrepresentation of fact and falsification of documents or forgery, all incidental and ancillary powers necessary to achieve the substantive object, must be regarded as being vested in the Enforcement Committee. Evidently, the Enforcement Committee 2 AIR 1962 SC 63 3 AIR 1966 SC 955 (See para 18) Dmt 25 wpl1663-11 was constituted specifically to deal with cases involving serious malpractices and fraud and, therefore, it would be natural to expect that the conferment of power to deal with those cases was accompanied by the vesting of the authority in the Enforcement Committee to take necessary action to deal with abuse or malpractice. Clause (v) of Para 17 states that where a Committee holds an exporter guilty of fraud or other irregularities, it is entitled to debar the exporter from obtaining entitlements and from participating in the scheme for a specified period. Clause (v) however is not exhaustive of the power which the notification confers upon the Committee. In a case such as the present, it is evident that the wrong doing was detected sometime in October 2004 whereas the quota regime was to come to an end on 31 December 2004. To hold that the powers of the Enforcement Committee would stand exhausted upon a debarment for the period covered by the Scheme, would be virtually to defeat the public purpose underlying the conferment of power. Such an interpretation cannot be adopted particularly when a notification, which