Case: Allana Sons Private Limited Vs. Foreign Exchange Regulation Appellate Board

S.W. PURANIK, J. ( 1 ) THESE three appeals arise out of the order of the Foreign Exchange Regulation Appellate Board (FERA Board or Appellate Board), first respondent, dated 23rd April 1992, holding inter alia the appellants guilty of contravention of section 18 (2) of the Foreign Exchange Regulation Act, 1973 (FERA) imposing penalty upon them and ordering its recovery. The appellant in First Appeal No. 599 of 1982 is the Company which is a Trading House carrying on the business of export of fruits amongst other businesses. The appellants in First Appeal No. 600 of 1982 and 601 of 1982 are the Directors of the said Company. These three appeals can be disposed of by a common judgment as the same arise out of a common judgment of the FERA Board dated 23rd April 1982. ( 2 ) IN order to appreciate the proceedings before the Adjudicating Authority and the Appellate Board, it would be necessary to enumerate the facts in brief. In December 1975, the Company Allana Sons (Private) Limited received an order from a Foreign Trading Company by name M/s. Meka Trading Co. , Tehran for supply of oranges and sour lemons. The said quantity of fruits was to be exported by the Company Allana Sons from India to Tehran. At about the same time M/s. Banana and Fruit Development Corporation Ltd. , Madras (BFDC), a Government of India Undertaking were also to ship their cargo of bananas of the value of Rs. 21,00,000/- to Meka Trading Co. , Tehran on board M. V. `fuente, a vessel chartered by them from the Shipping Corporation of India. ( 3 ) ON learning that the said vessel was proceeding to Tehran and that there was some unutilized cargo space, on request of Allana Sons, BFDC agreed to carry the cargo of Allana sons on payment of freight charges.( 4 ) ON 17th December 1975, Allana Sons loaded their cargo of oranges and sour lemons valued at U. S. Dollars 25,365 C. and F. equivalent to Rs. 2,33,134. 20 ps and paid Rs. 67,273. 10 ps. as freight charges. It is pertinent to note that the said cargo was shipped against L/c drawn under Dentche Iranishee Handles Bank A. C. Hamburg through Bank of America under the cover of diverse G. R. I. forms. ( 5 ) ON the same day, the Shipping Corporation of India issued a Bill of Lading to Allana Sons. Under the said Bill of Lading the cargo was to be delivered to the order of Bank of Sadarat Iran, Iranshahr, Snomali Branch and the party to be notified was Meka Trading Co. ( 6 ) ON 18-12-1975, the said ship left for Iran. On 6th January 1976, the Bank of America paid the amount of Rs. 2,33,134/- to the credit of account of Allana Sons with the Union Bank of India. ( 7 ) ON 12th February 1976, however, the Bank of America informed the Union Bank of India that on account of certain discrepancies, the documents of the transaction were returned by their principals and as a result of this intimation the Union Bank of India refunded the amount to the Bank of America and reversed the credit entry. The account of Allana Sons was thus debited to that extent along with interest. ( 8 ) ON verification, the appellant Allana Sons came to learn that their cargo was delivered to Meka Trading Co. , by the local agents of Shipping Corporation of India without the Meka Trading Co. , surrendering the original Bill of Lading or giving bank guarantee for clearing the said cargo. It appears that the cargo was released without the authority of the appellant Allana Sons, without the consent or knowledge of the appellant Allana Sons and only on personal indemnity bond of Meka Trading Co. , even without securing the Banks counter signature thereon. ( 9 ) ON learning of these facts, the appellant Allana Sons immediately called upon the Shipping Corporation of India to enforce the said personal indemnity bond executed by Meka Trading Co. , for payment of their dues. ( 10 ) IMMEDIATELY thereafter on 8th January 1979 the appellant Allana Sons filed Civil Suit No. 495 of 1979 against BFDC and the Shipping Corporation of India to recover their dues amounting to Rs. 2,41,834. 05ps. along with interest of Rs. 66,690. 59ps. The said suit is still pending. Several material documents have been tendered therein.( 11 ) DURING the pendency of these appeals Civil Application No. 70 of 1993 came to be filed by the appellants under Order XLI, Rule 27 of the Code of Civil Procedure for tendering documents as additional evidence. The said documents are directly relevant and material to the proceedings before us and this Court by order dated 6th January 1993 allowed the civil application and accepted the additional documents as evidence on record after hearing both the parties. ( 12 ) THE facts as transpiring from the said documents and not disputed by the respondents are that there ensued a correspondence between the appellant Allana Sons and the Shipping Corporation of India as also the BFDC. The relevant Exhibits A, B. D. H. I. K. L. P. Q and R to Civil Suit No. 495 of 1979 reflect this position. The Shipping Corporation of India, however, failed to recover the said dues for the appellants. ( 13 ) LONG after these steps were taken by M/s. Allana Sons it was on 28th September 1979 that a show cause notice was issued by the Additional Director of Enforcement, New Delhi to the appellant Allana Sons and its directors for the alleged contravention of provisions of section 18 (2) of the FERA on the ground that they failed to repatriate the sale proceeds of the said shipment within six months. The appellants submitted their written explanation to the said notice. They denied the charge and strongly relied upon the telex messages exchanged between Shri K. C. Shankarnarayan, Managing Director of the BFDC and the local agent of the Shipping Corporation of India whereby the said local agent of the Shipping Corporation of India was directed by the said Shankarnarayan to release all cargo on board the said vessel to Meka Trading Co. , and pursuant to which instructions all cargo including the cargo of Allana Sons was parted with on personal indemnity bond executed by the said Meka Trading Co. , even without the counter signature of the Bank. ( 14 ) BEFORE the Adjudicating Authority the appellants also relied upon the minutes of the Board Meeting of BFDC held on 18th June 1977 where the said Board expressed its unhappiness at the manner in which Shankarnarayan had parted with the cargo of Allana Sons without observing the requisite formalities. It appears that the BFDC had also asked Shankarnarayan to explain the circumstances under which he parted with the cargo of Allana Sons. Shankarnarayan gave his reply on 21st November 1977 wherein he stated that the BFDC had no option except to accept Meka Trading Co. s proposal in good faith as otherwise the ship would have to wait for more days at the foreign port resulting in heavy loss and demurrage charges apart from the daily charges of the chartered ship. According to Shankarnarayan even the cargo of oranges and lemons sent by Allana Sons had to be released in the similar manner subject to the same condition or otherwise the chartered ship would have to be delayed at great cost on the shoulders of the BFDC. The record and the additional documents filed on record disclose that one Sheraf J. Ansari, a Jordanian national, was a selling Agent of BFDC and was not in any manner authorised by Allana Sons to deal with their cargo. On the contrary, he appears to be a man of Shankarnarayans confidence.( 15 ) IT is in these peculiar circumstances and events that appellant Allana Sons lost their valuable right to recover the dues in the regular procedure through banking channel. In fact it is in these circumstances that the appellant Allana Sons had taken legal steps and filed a suit against the BFDC and the Shipping Corporation of India much prior to the show-cause notice. ( 16 ) THERE was also no purpose in proceeding against the Meka Trading Co. , as is evident from the letter dated 29-8-1989 addressed by the Under Secretary to the BFDC whereby the Government advised the BFDC not to proceed against the Meka Trading Co. , as it was under liquidation. Thus the attempts of Allana Sons for direct negotiations with the consignees were also frustrated. ( 17 ) BEFORE the Adjudicating Authority further explanations were tendered and on 31st December 1980 the Additional Director held that the appellant Company and its Directors had contravened the provisions of section 18 (2) of the FERA and imposed penalty of Rs. 25,000 on Allana Sons and Rs. 5,000/- on each of the Directors. ( 18 ) THE appellants i. e. the Company and its Directors preferred three separate appeals before the FERA Board. ( 19 ) BY order dated 23rd April 1982 the FERA Board upheld the order of Additional Director of Enforcement but reduced the penalty amount imposed upon the appellants. The penalty of Rs. 25,000/- on Allana Sons was reduced to Rs. 10,000/- while the penalty amount of Rs. 5,000 imposed on each of its Directors was reduced to Rs. 2,000/- each. This FERA Boards order is a common order dated 23rd April 1982 against which the present three appeals have been carried by the Company and its Directors. It is the case of the Enforcement Authority that the appellants had contravened the provisions of section 18 (2) of the FERA on the ground that the appellants did not realise within six months from the date of shipment the value of their goods viz. , oranges and sour lemons exported by the appellants in the month of December 1975 worth US Dollars 25,365 equivalent to Rs. 2,33,134. 20ps. to the Meka Trading Co. , Tehran. ( 20 ) SHRI Karmail, the learned Advocate appears for the appellant in all these three appeals, while the respondents are represented by Shri Mirajkar, the learned Government Pleader. With the assistance of learned Counsel of both the parties we have perused the impugned order as well as the documents and material on record. It is strongly contended by Shri Karmali that if the facts and circumstances of this transaction are carefully appreciated, it would disclose that there has not been any act or omission on the part of the appellants which had the effect of securing non-payment of the value of the goods exported in foreign currency.( 21 ) SECTION 18 (2) of the FERA reads as under :"18 (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 anything, or take or refrain from taking any action, which has the effect of securing - (A)in a case falling under sub-clause (i) or sub-clause (ii) or Clause (a) of sub-section (1),- (a)that payment for the goods - (i) is made otherwise than in the prescribed manner, or (ii) is delayed beyond the period prescribed under Clause (a) of sub-section (1), or (b)that the proceeds of the sale of the goods exported do not represent the full export value of the goods subject to such deductions, if any, as may be allowed by the Reserve Bank ; and (B)in a case falling under sub-clause (ii) of sub-section (1), also that the sale of the goods is delayed to an extent which is unreasonable having regard to the ordinary course of trade :"provided that no proceedings in respect of any contravention of the provisions of this sub-section shall be instituted unless the prescribed period has expired and payment for the goods representing the full export value has not been made in the prescribed manner within the prescribed period. "( 22 ) THE case of the Department appears to be alleged contravention by the appellants of section 18 (2) (A) (a) (ii) in that where any export of goods has been made, no person shall except with the permission of the Reserve Bank, do or refrain from doing anything or take or refrain from taking any action which has the effect of securing. . . that payment for the goods is delayed beyond the period prescribed under Clause (a) of sub-section (1 ).( 23 ) IT is strongly urged by Shri Karmali that the appellants have not contravened the provisions of section 18 (2) of the FERA inasmuch as they have neither done nor refrained from doing anything and neither they did nor refrained from taking any action which had the effect of securing the payment of the said goods delayed beyond the prescribed period for its recovery. Shri Karmali also pointed out the finding of the Appellate Board as it appears in paragraphs 12 and 13 of the impugned order. It would be useful to reproduce the said finding:"12. I have considered the rival contentions of the parties. Events have taken place in an unforeseen manner and quite contrary to normal practices and one does not expect the carrier to deliver the goods to a consignee without proper documents and contrary to instructions. The Shipping Corporation of India was directed to unload the consignments of the appellants and to give delivery to the consignees without taking a proper security for the value of the goods so delivered. To this extent, I agree that the appellants were helpless in the matter. 13. However, considering the facts and circumstances of the case in its entirety and the fact that the appellants were the victims of the action of certain third parties, I feel a lenient view is called for regarding the penalty. ">( 24 ) ON the other hand, the learned Government Pleader took the stand that where the value of exported goods has not been repatriated to our country within the specified period, it is for the exporter to explain bona fides and the steps taken by him in securing repartition within the specified period. The party would be in the wrong if the delay in securing repatriation is beyond the specified period and would be guilty of contravention of section 18 (2) (A) (a) (ii) of the FERA. ( 25 ) IN the facts and circumstances which have been narrated by us in detail and which facts are not in dispute and to some extent the finding of the FERA Board also indicates that in fact the appellants despite due diligence were helpless in the matter. The events have taken place in an unforeseen manner and quite contrary to normal practice and as found by the Appellate Board the appellants were the victims of actions of certain third parties. ( 26 ) THIS has obvious reference to the telex messages exchanged between the BFDC and the Shipping Corporation of India as well as the Shipping Corporation of India and the local agent of Meka Trading Co. The contravention of section 18 (2) of the FERA would have occurred only for some volition on the part of the exporter in either doing or refraining from doing an act or either taking or refraining from taking an action. Obviously, therefore, from the phraseology as obtaining in section 18 (2) main part would indicate not only volition but some deliberate action or a deliberate act of refraining from taking any steps which results in securing one of the two modes of payment i. e. either not in accordance with the prescribed manner or being delayed beyond the prescribed period under Clause (a ). But if events occur which are beyond the ordinary control of the party and which despite diligence or bona fides the exporter would not have been able to secure payment within the specified period, in our opinion, there would be no contravention of section 18 (2) of the FERA. The present circumstances appear to indicate a helpless situation and a helpless party where we cannot visualise any contravention of section 18 (2) of the FERA. At any rate even assuming that there was a presumption that the appellants have failed to secure the payment within the prescribed time, the said presumption is rebuttable and the facts on record clearly show that the appellants have taken all reasonable steps to realise and recover payments and not only that, they had filed civil suit long before the department even thought of show-cause proceedings. This is, therefore, not a case where the party can be branded as guilty of contravention of section 18 (2 ). The documents of the transaction, the conditions of transfer and in particular the instructions that under the said Bill of Lading the cargo of Allana Sons was to be delivered to the order of Bank of Sadarat Iran, Iranshahr, Snomali Branch and the party to be notified was Meka Trading Co. , shows that the exporters had taken all necessary precautions for realising the foreign exchange in the value of the goods through banking channel. It is only because of the action of the third parties which have immoveablised them from proceeding further in recovering the foreign exchange directly and have been constrained to file civil suit for damages against the BFDC and the Shipping Corporation of India. In the result, therefore, the impugned judgment of the Appellate Board and that of the Adjudicating Authority will have to be quashed and set aside. Proceedings in show-cau

Decision reasoning: 1[ds]( 25 ) IN the facts and circumstances which have been narrated by us in detail and which facts are not in dispute and to some extent the finding of the FERA Board also indicates that in fact the appellants despite due diligence were helpless in the matter. The events have taken place in an unforeseen manner and quite contrary to normal practice and as found by the Appellate Board the appellants were the victims of actions of certain third26 ) THIS has obvious reference to the telex messages exchanged between the BFDC and the Shipping Corporation of India as well as the Shipping Corporation of India and the local agent of Meka Trading Co. The contravention of section 18 (2) of the FERA would have occurred only for some volition on the part of the exporter in either doing or refraining from doing an act or either taking or refraining from taking an action. Obviously, therefore, from the phraseology as obtaining in section 18 (2) main part would indicate not only volition but some deliberate action or a deliberate act of refraining from taking any steps which results in securing one of the two modes of payment i. e. either not in accordance with the prescribed manner or being delayed beyond the prescribed period under Clause (a ). But if events occur which are beyond the ordinary control of the party and which despite diligence or bona fides the exporter would not have been able to secure payment within the specified period, in our opinion, there would be no contravention of section 18 (2) of the FERA. The present circumstances appear to indicate a helpless situation and a helpless party where we cannot visualise any contravention of section 18 (2) of the FERA. At any rate even assuming that there was a presumption that the appellants have failed to secure the payment within the prescribed time, the said presumption is rebuttable and the facts on record clearly show that the appellants have taken all reasonable steps to realise and recover payments and not only that, they had filed civil suit long before the department even thought ofproceedings. This is, therefore, not a case where the party can be branded as guilty of contravention of section 18 (2 ). The documents of the transaction, the conditions of transfer and in particular the instructions that under the said Bill of Lading the cargo of Allana Sons was to be delivered to the order of Bank of Sadarat Iran, Iranshahr, Snomali Branch and the party to be notified was Meka Trading Co. , shows that the exporters had taken all necessary precautions for realising the foreign exchange in the value of the goods through banking channel. It is only because of the action of the third parties which have immoveablised them from proceeding further in recovering the foreign exchange directly and have been constrained to file civil suit for damages against the BFDC and the Shipping Corporation of India. In the result, therefore, the impugned judgment of the Appellate Board and that of the Adjudicating Authority will have to be quashed and set aside.