THE HONOURABLE MRS v. The Appellate Tribunal for Foreign Exchange,Janapath Bhaw

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 27.08.2010CORAM:THE HONOURABLE MRS.JUSTICE R.BANUMATHIANDTHE HONOURABLE MR.JUSTICE G.M.AKBAR ALIC.M.A.Nos.2101 to 2104 of 2010and M.P.Nos.1 and 2 of 2010M/s.Fayshaw ApparelsNo.8, West Mada Church StreetRoyapuramChennai – 600 013....Appellant in C.M.A.No.2101 of 2010Mr.B.P.Byram ShawManaging Partner of M/s.Fayshaw ApparelsNo.8, West Mada Church StreetRoyapuram, Chennai – 600 013. ...Appellant in C.M.A.No.2102 of 2010M/s.Shaw Garments Pvt.Ltd.No.8,West Mada Church StreetRoyapuram, Chennai – 600 013...Appellant in C.M.A.No.2103 of 2010Mr.Byram ShawManaging Director,M/s.Shaw Garments Pvt.Ltd.No.8,West Mada Church StreetRoyapuram, Chennai – 600 013....Appellant in C.M.A.No.2104 of 2010Vs.1.The Appellate Tribunal for Foreign Exchange,Janapath Bhawan, 4th Floor,B Wing, Janapath,New Delhi – 110 0012.The Special DirectorOffice of Special Director of EnforcementDirectorate of EnforcementNew Delhi.. ... Respondents in all CMAsPrayer: Civil Miscellaneous Appeals in C.M.A.Nos.2101 to2104 of 2010 are filed under Section 35 of Foreign ExchangeManagement Act, 1999 against the Final Order dated 28.5.2010 passedin Appeal Nos.91, 92, 93 and 94 of 2010 on the file of theAppellate Tribunal for Foreign Exchange, New Delhi 1st Respondentconfirming adjudication Special Order No.SDE/SKS/IV/1/2010 (FileNo.T-4/2-CHE/2009), SDE/SKS/IV/1/2010 (File No.T-4/2-CHE/2009),SDE/SKS/IV/2/2010 (File No.T-4/2-CHE/2009) and SDE/SKS/IV/2/2010 https://hcservices.ecourts.gov.in/hcservices/ (File No.T-4/2-CHE/2009) dated 2.2.2010 passed by the SpecialDirector, Directorate of Enforcement, New Delhi.(2nd Respondent)For Appellant in C.M.As : Mr.R.Muthukumaraswamy, Sr.Counsel for Mr.G.Derrick SamFor Respondent in CMAs: Mr.M.Dhandapani,Spl.Counsel for FEMA JUDGMENTR.BANUMATHI,J.These Appeals arise out of the Order of Appellate Tribunalfor Foreign Exchange, New Delhi dated 28.5.2010 in Appeal Nos.91,92, 93 and 94 of 2010 rejecting the applications for dispensationof pre-deposit and directing the Appellants to make payment of fullamount of penalty within 30 days from the date of receipt of theorder and holding that on failure to make full payment the appealswill be dismissed on that ground. M/s.Fayshaw Apparels is theappellant in C.M.A.No.2101 of 2010, M/s.Shaw Garments Pvt.Ltd. isthe appellant in C.M.A.No.2103 of 2010 and B.P.Byram Shaw, theManaging Partner/Managing Director of the said firm and Company isthe Appellant in C.M.A.Nos.2102 and 2104 of 2010. 2. The brief facts are that the Appellant firm/Company areexporters of garments covered by eight shipping bills through ICD,Irugur, Coimbatore and the same were exported through TuticorinPort. The value of the outstanding export proceeds isRs.1,13,20,461/- in respect of M/s.Fayshaw Apparels andRs.87,92,412/- in respect of M/s.Shaw Garments Private Limited. Interms of Section 8 of Foreign Exchange Management Act (in short,"FEMA") the exporters are required to take all reasonable steps torealise and repatriate to India the amount of foreign exchangewithin prescribed period and manner as mentioned in the GR forms.According to the Department, the Appellants have failed to take allreasonable steps to realise and repatriate to India the foreignexchange to the tune of Rs,1,13,20,461/- and Rs.87,92,412/- andhence they are liable for appropriate action under FEMA, 1999. 3. The case of Appellants is that shipments were notrealised in respect of two shipments and only part realisation wasreceived. Show cause notices were issued to the Appellant firmsand their Managing Director alleging that the Appellants failed toprove reasonable steps to realise the outstanding export proceedsin respect of 10 GR forms involving amount of Rs.1,13,20,461/- andRs.87,92,412/- in contravention of the provisions of Sections 7and 8 of FEMA, 1999 read with section 9 and 13(i)(ii) of ForeignExchange Management (Export of Service) Regulation, 2000 (in short,"FMR, 2000"). According to the Appellants, by letter dated5.7.2007, they have intimated RBI about the non-realisation of theexport proceeds and the efforts taken to realise the sale proceeds https://hcservices.ecourts.gov.in/hcservices/ from K.Gunasekar, the agent of the buyer till they learnt that hewas detained under COFEPOSA. Further, according to the Appellants,they have requested RBI to waive the outstanding export dues. 4. Holding that the Appellants have contravened provisionsof Sections 7 and 8 of FEMA, 1999 read with Regulations 9 and 13(i)and (ii) of FEMR, 2000, the Special Director, by orderNo.SDE/SKS/IV/2/2010, imposed a penalty of Rs.40,00,000/- onM/s.Shaw Garments Pvt.Ltd., and further penalty of Rs.10,00,000/-on the Managing Director and by other Order No.SDE/SKS/IV/1/2010,imposed a penalty of Rs.50,00,000/- on the firm M/s.FayshawApparels and further penalty of Rs.10,00,000/- on the ManagingPartner in terms of Section 13 of FEMA, 1999. Being aggrieved bythe orders of the Special Director, the Appellants have preferredappeals before the Appellate Tribunal for Foreign Exchange, NewDelhi. 5. Holding that the Appellants have failed to showreasonable steps on their part which would have been taken by aprudent businessman under similar circumstances, referring todecisions of Supreme Court in MANOTOSH SAHA VS. SPECIAL DIRECTOR,ENFORCEMENT DIRECTORATE, 2008(11) SCALE 603 and UNION OF IDNAI VS.ADANI EXPORTS LTD., 2007 AIR SCW 7134, the Appellate Tribunalrejected the applications for dispensation and directed theAppellants to make full payment of penalty within 30 days from thedate of receipt of the order and observing that on failure to makepayment the appeals would be dismissed on that ground alone. Beingaggrieved with the order of the Appellate Tribunal rejectingdispensation applications, the appellants have come forward withthese Appeals. 6. Learned Senior Counsel for AppellantsMr.R.Muthukumaraswamy submitted that the penalty imposed will notstand to the test and while so, imposing condition of pre-depositof penalty would cause "undue hardship" to the Appellants. It wasfurther contended that for more than 14 years, the Appellants wereexporting garments and are having clean record of exports andearned foreign exchange to the tune of more than Rs.16 Crores andthe past history of earning foreign exchange by the Appellantsought to have been taken into account by the Appellate Tribunal. Itwas further submitted that under the proviso to Section 19 ofForeign Exchange Management Act, discretion has to be exercisedjudicially and the insistence of pre-deposit of the penalty, whichitself was a huge sum would deprive the Appellant the statutoryright of the appeal, which would cause "undue hardship to theAppellant. The learned Senior Counsel would further urge thatthere is no revenue loss to the Government and the penalty wasimposed on the notional loss of foreign exchange on account of non-realisation of export proceeds.7. Countering the arguments, Mr.Dhandapani, learned counselfor Respondents submitted that even though goods were exported in2002, till show cause notices were issued, the Appellants have nottaken any steps to realise the exported proceeds and Appellants https://hcservices.ecourts.gov.in/hcservices/ have not shown any "undue hardship". Placing reliance upon INDUNISSAN OXO CHEMICALS INDUSTRIES LIMITED VS. UNION OF INDIA, (2007)13 SCC 487, the learned counsel would further contend that merefinancial hardship is not "undue hardship" and in fact theAppellate Tribunal has imposed penalty, which is very much lesserthan the non-realised proceeds of the exported garments. 8. As the only challenge in these appeals is, the rejectionorder relating to pre-deposit, we shall deal with the issuerelating to dispensation of pre-deposit. As per Section 19, theperson appealing against the order has to deposit the amount ofpenalty while filing the appeal. As per the proviso, if the pre-condition of deposit would cause "undue hardship" to theAppellant, the Appellate Tribunal may dispense with such depositsubject to such conditions as it may deem fit to impose so as tosafeguard the interest of the revenue. Section 19 of FEMA, 1999reads as under:19. Appeal to Appellate Tribunal(1) Save as provided in sub-section (2), theCentral Government or any person aggrieved by an ordermade by an Adjudicating Authority, other than thosereferred to in sub-section (1) of section 17, or theSpecial Director (Appeals), may prefer an appeal to theAppellate Tribunal :Provided that any person appealing against theorder of the Adjudicating Authority or the SpecialDirector (Appeals) levying any penalty, shall while filingthe appeal, deposit the amount of such penalty with suchauthority as may be notified by the Central Government:Provided further that where in any particularcase, the Appellate Tribunal is of the opinion that thedeposit of such penalty would cause undue hardship to suchperson, the Appellate Tribunal may dispense with suchdeposit subject to such conditions as it may deem fit toimpose so as to safeguard the realisation of penalty.(2) .....(3) .....(4) .....(5) ....(6) ....."9. The principle relating to grant of stay pending disposalof the matters before the forums concerned was discussed in severalcases. It is to be noted that in such matters, where discretion isavailable to the authorities/Appellate Tribunal, discretion has tobe exercised judicially. Referring to UNION OF IDNAI VS. ADANIEXPORTS LTD., 2007 AIR SCW 7134, the Appellate Tribunal hashighlighted the relevant aspects while rejecting the prayer fordispensation of pre-deposit. In the said judgment, the SupremeCourt observed as under: "9. ..... The three aspects to be focussed while dealingwith such applications are: (a) prima facie case, (b)balance of convenience, and (c) irreparable loss. The https://hcservices.ecourts.gov.in/hcservices/ Tribunal categorically found that these factors wereestablished by the respondents. Even when the Tribunaldecides to grant full or partial stay it has to impose suchconditions as may be necessary to safeguard the interest ofrevenue. This is an imperative requirement under Section129-E of the Act. (Customs Act) ....."10. The expression used in proviso to Section 19(1) is notmere hardship, but "undue hardship". "Undue hardship" meanssomething which is not merited by the conduct of the Claimant.Section 35-F of the Central Excise Act is identical to Section 19(1) of FEMA. Under Section 35-F of Central Excise Act, the persondesirous of preferring an appeal against any decision or order hasto deposit the duty or penalty before filing the appeal. Proviso toSection 35-F is identical to the proviso to Section 19(1), wherethe Appellate Tribunal is of the opinion that the deposit of dutydemanded or penalty levied would cause "undue hardship" to suchperson, the Appellate Tribunal may dispense with such depositsubject to such conditions as it may deem fit to impose so as tosafeguard the interest of the revenue.11. Considering the scope of expressions "undue hardship",and "safeguard the interest of the revenue", and observing thatwhile dealing with application for dispensation of pre-deposit, theinterest of the revenue has to be kept in view, in BENARA VALVESLTD. VS. COMMISSIONER OF CENTRAL EXCISE, (2006) 13 SCC 347, theSupreme Court held as under:"11. Two significant expressions used in theprovisions are “undue hardship to such person” and“safeguard the interests of the Revenue”. Therefore,while dealing with the application twin requirements ofconsiderations i.e. consideration of undue hardshipaspect and imposition of conditions to safeguard theinterests of the Revenue have to be kept in view.12. As noted above there are two importantexpressions in Section 35-F. One is undue hardship. Thisis a matter within the special knowledge of the applicantfor waiver and has to be established by him. A mereassertion about undue hardship would not be sufficient.It was noted by this Court in S. Vasudeva v. State ofKarnataka (1993) 3 SCC 467 that under Indian conditionsexpression “undue hardship” is normally related toeconomic hardship. “Undue” which means something which isnot merited by the conduct of the claimant, or is verymuch disproportionate to it. Undue hardship is causedwhen the hardship is not warranted by the circumstances.13. For a hardship to be “undue” it must be shownthat the particular burden to observe or perform therequirement is out of proportion to the nature of therequirement itself, and the benefit which the applicantwould derive from compliance with it. https://hcservices.ecourts.gov.in/hcservices/

14. The word “undue” adds something more thanjust hardship. It means an excessive hardship or ahardship greater than the circumstances warrant.15. The other aspect relates to imposition ofcondition to safeguard the interests of the Revenue. Thisis an aspect which the Tribunal has to bring into focus.It is for the Tribunal to impose such conditions as aredeemed proper to safeguard the interests of the Revenue.Therefore, the Tribunal while dealing with theapplication has to consider materials to be placed by theassessee relating to undue hardship and also to stipulateconditions as required to safeguard the interests of theRevenue."12. The questions falling for our consideration are,whether the Appellants have shown undue "hardship" while rejectingthe application for dispensation of pre-deposit and whether theAppellate Tribunal has judicially exercised the discretion. It istrue that merely establishing a prima facie case, interim order ofdispensation of deposit should not be passed. Only where it appearsthat the penalty imposed has no legs to stand or it would beundesirable to ask the Appellant to pay the full or part of thepenalty, the Appellate Tribunal can dispense with the condition ofpre-deposit of penalty on such conditions as it may deem fit. Butsuch petition should not be disposed off in a routine mannerunmindful of the consequences on the revenue flowing from the orderrequiring the Appellant to deposit full or part of the penalty.13. As rightly contended by the learned counsel forRespondents, Government is encouraging exports to foreign countriesmainly to earn foreign exchange. The purpose of encouraging exportsis not only to earn foreign exchange, but also to preserve theforeign exchange in order to improve the wealth of the nation.While considering the applications for dispensation with pre-deposit, Courts will have to keep in view the interest of therevenue of the State/Government Exchequer. Under Section 129-E ofthe Customs Act, for filing of Appeal from any order, there is acondition for pre-deposit. In the decision of INDU NISSAN OXOCHEMICALS INDUSTRIES LIMITED VS. UNION OF INDIA, (2007) 13 SCC 487,the Commissioner imposed a penalty of Rs.10,00,00,000/- underSection 112(a) of the Customs Act. In the appeal preferred beforethe Customs, Excise and Service Tax Appellate Tribunal (in short,CESTAT"), the CESTAT has directed the applicants to depositRs.2,00,00,000/- (2 Crores), which was challenged before the HighCourt and High Court confirmed the order of the CESTAT. In theappeal before the Supreme Court in the above said decision, theAppellant thereon submitted that its bonafide is writ large andthe Company had become a sick company and therefore insistence ofpre-deposit even of a part, which is a huge sum of Rs.2 Crores,would deprive the Appellant of the statutory right of the appeal.It was pointed out that the Appellant would be subject to "unduehardship", since as per its financial statements the Appellant hassuffered huge losses. Declining to interfere with the order of https://hcservices.ecourts.gov.in/hcservices/ CESTAT confirmed by the High Court imposing penalty of Rs.2 Crores,the Supreme Court referring to METAL BOX INDIA LTD. VS. CCE, (2003)11 SCC 197, held as under: 10. “6. Principles relating to grant of staypending disposal of the matters before the forums concernedhave been considered in several cases. It is to be notedthat in such matters though discretion is available, thesame has to be exercised judicially.7. The applicable principles have been set outsuccinctly in Siliguri Municipality v. Amalendu Das (1984)2 SCC 436, Samarias Trading Co. (P) Ltd. v. S. Samuel(1984) 4 SCC 666 and CCE v. Dunlop India Ltd. (1985) 1 SCC260.8. It is true that on merely establishing a primafacie case, interim order of protection should not bepassed. But if on a cursory glance it appears that thedemand raised has no legs to stand on, it would beundesirable to require the assessee to pay full orsubstantive part of the demand. Petitions for stay shouldnot be disposed of in a routine matter unmindful of theconsequences flowing from the order requiring the assesseeto deposit full or part of the demand. There can be no ruleof universal application in such matters and the order hasto be passed keeping in view the factual scenario involved.Merely because this Court has indicated the principles thatdoes not give a licence to the forum/authority to pass anorder which cannot be sustained on the touchstone offairness, legality and public interest. Where denial ofinterim relief may lead to public mischief, graveirreparable private injury or shake a citizen’s faith inthe impartiality of public administration, interim reliefcan be given. vide (2006) 13 SCC 347”14. In the instant case, the amount payable by a foreignbuyer in respect of exported goods is necessarily a question offact. The learned counsel for Respondents submitted that eventhough goods were exported in 2002, till show cause notices wereissued, there were no steps taken on the part of the Appellants forrealisation and there was no proof to show that the Appellants havetaken reasonable steps to realise the exported proceeds andtherefore the adjudicating authority came to the conclusion thatthe Appellants did not take any reasonable steps to realise exporton proceeds as contemplated in the FEMA and based upon materialsthe Appellate Tribunal has rightly rejected the applications fordispensation of deposit of penalty.15. As per Section 13 of FEMA, where any person contravenesany provisions of the Act or contravenes any condition, subject towhich authorisation is issued by Reserve Bank of India he will beliable to penalty on adjudication upto thrice the sum involved insuch contravention if the amount is quantifiable. As pointed out https://hcservices.ecourts.gov.in/hcservices/ earlier, in respect of Fayshaw Apparels, the outstanding isRs.1,13,20,461/- and in respect of M/s.Shaw Garments PrivateLimited, outstanding is Rs.87,92,412/-. The transaction was in2002. The Appellants are said to have corresponded with ReserveBank of India only in 2007. In the case of Fayshaw Apparels, thepenalty imposed on the firm is only Rs.50,00,000/- plusRs.10,00,000/- was imposed on its Managing Partner as against theoutstanding of Rs.1,13,20,461. Likewise, in the case of Company –Shaw Garments Private Limited, penalty of Rs.40,00,000/- on thefirm plus Rs.10,00,000/- on the Managing Director was imposed asagainst the contravention of Rs.87,92,412/-. Even though theadjudicating authority can impose penalty thrice the sum involvedin such contravention, the adjudicating authority has imposedpenalty much lesser than the amount involved in contravention. Inour considered view, the adjudicating authority itself hasjudicially exercised its discretion in imposing less penalty andtaking note of the same Appellate Tribunal has judicially exercisedits discretion in dismissing the applications for dispensation ofpre-deposit of penalty.16. Learned Senior Counsel for the Appellants submittedthat the Appellants have exported the garments based on theinstructions of one K.Gunasekar of M/s.Field Line Trading LLC,Dubai, who was the agent of Overseas Buyers and the said Gunasekarwas detained under COFEPOSA by Air Customs, Chennai and in 2007 theAppellants have intimated the Reserve Bank of India about the non-realisation of the export proceeds in respect of the said shippingbills and the Appellants were taking all efforts to realise thesale proceeds from the said Gunasekar, agent for the buyer andthese aspects were not taken note of by the Appellate Tribunal. Itwas further submitted that appellants are not having huge turnoverbut only having medium level of business and to direct theappellants to pay Rs.1,10,00,000/- would cause undue hardship,which aspect was not kept in view by the appellate Tribunal.17. The question whether the Appellants have takenreasonable steps for realisation of export proceeds and whetherdetention of the said Gunasekar under COFEPOSA has any relevancefor realisation of export proceeds are the matters to be consideredby the Appellate Tribunal while hearing up the Appeals. Likewise,the question whether the Appellants have taken reasonable steps forrealisation of sale proceeds also falls for consideration beforethe Tribunal while hearing the appeals and we consciously refrainourselves from expressing any opinion on those questions, lest wewould be expressing our views on the merits of the matter. 18. As rightly submitted by the learned counsel forRespondents, the object of Foreign Exchange and Management Act isfor promoting the orderly development and maintenance of foreignexchange market in India. The purpose of encouraging exports is inorder to improve the foreign exchange reserves to improve thewealth of the nation. A prima facie case has been made out as tothe contravention of the provisions of FEMA and on being satisfiedof the prima facie case, the Appellate Tribunal has rightly https://hcservices.ecourts.gov.in/hcservices/ dismissed the applications dispensing pre-deposit. Mere financialdifficulties cannot be said to be "undue hardship". When theAppellate Tribunal has judicially exercised its discretion, HighCourt/Appellate Court will not interfere with the exercise ofdiscretion, which has been judicially exercised. The viewsexpressed by us in this order shall not be construed as expressionof opinion on the merits of the matter. 19. In the result, all the Civil Miscellaneous Appeals aredismissed. The Tribunal in the impugned order dated 28.5.2010 hasdirected the Appellants to make payment of full amount of penaltywithin thirty days from the date of receipt of the order. TheAppellants are directed to comply with the order of the Tribunalwithin 30 days from today (27.08.2010). However, there is no orderas to costs. Consequently, the connected miscellaneous petitionsare closed.Sd/-Asst. Registrar//true copy//Sub Asst.RegistraruskCopy to:1.The Appellate Tribunal for Foreign Exchange,Janapath Bhawan, 4th Floor,B Wing, Janapath,New Delhi – 110 0012.The Special DirectorOffice of Special Director of EnforcementDirectorate of Enforcement New Delhi.. 1 cc to Mr.G.Vijayabalan, Advocate, Sr.No.635151 cc to Mr.M.Dhandapani, Advocate, Sr.No.64073 Judgment in CMA.Nos.2101 to 2104 of 2010KSK {CO}TP/16.9.2010.