Foreign Exchange Management Act, 1999 – ss.10(6), 16(3),
46 & 47; Proviso to s.42(1) – Adjudicating authority held that the appellant-Managing Director of the Company and the Company had violated s.10(6) r/w ss.46, 47 and paragraphs A-10 and A-11 (Current Account Transaction) of the Foreign Exchange Manual 2003-04 – Appeal before Special Director (Appeals), FEMA & Commissioner of Income-Tax, Delhi was dismissed – Appeal before High Court – Dismissed – Held: s.10(6) is a deeming provision pointing towards specified circumstances, which would result in having committed contravention of the provisions of the FEMA Act or for the purpose of the stated Section – In the present case, the finding of fact was that the import of goods for which the foreign exchange was procured and remitted was not completed as the Bill of Entry remained to be submitted and the goods were kept in the bonded warehouse and the Company took no steps to clear the same – s.10(6) is clearly attracted being a case of not using the procured foreign exchange for completing the import procedure – Contravention referred to in s.10(6) is a continuing actionable offence– Once it is held that the contravention is a continuing offence, the fact that the appellant was not looking after the affairs of the Company in 2000 (the year of contravention) would be of no avail to the appellant until corrective steps were taken in right earnest after his taking over the management of the Company (in terms of MoU dtd. 22.10.01) and in particular after becoming aware about the contraventions – No error committed by the adjudicating authority in finding that the appellant was also liable to be proceeded with for the contravention by the Company of which he became the Managing Director and for penalty therefor as prescribed for the contravention – First appellate authority and the High Court justly affirmed the said view – Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 – Regulation 6.
Foreign Exchange Management Act, 1999 – Proviso to s.42(1) – Benefit under – When can be availed – Discussed. Dismissing the appeal, the Court
HELD: 1.1 Section 10(6) of the Foreign Exchange Management Act, 1999 is a deeming provision pointing towards the specified circumstances, which would result in having committed contravention of the provisions of the FEMA Act or for the purpose of the stated Section. The specified circumstances are (i) when a person acquires or purchases foreign exchange for any purpose mentioned in the declaration made by him to authorised person does not use it for such purpose; (ii) that person does not surrender the acquired or purchased foreign exchange to authorised person within the specified period, and
(iii) the person uses the acquired or purchased foreign exchange for any other purpose for which purchase or acquisition of foreign exchange is not permissible under the provisions of the FEMA Act or the rules or regulations or direction or order made thereunder. Each of these are standalone circumstances. In the present case, the finding of fact is that the import of goods for which the foreign exchange was procured and remitted was not completed as the Bill of Entry remained to be submitted and the goods were kept in the bonded warehouse and the Company took no steps to clear the same. As a result, Section 10(6) of the FEMA Act is clearly attracted being a case of not using the procured foreign exchange for completing the import procedure. [Paras 9, 10][72-E-H; 73-A]
1.2 The High Court opined that the contravention referred to in Section 10(6) by its very nature is a continuing offence. That view is agreed with. The penalty provided for such contravention is on account of civil obligation under the FEMA Act or the rules or regulations or direction or order made thereunder. If the delinquency is a civil obligation, the defaulter is obligated to make efforts by payment of the penalty imposed for such contravention. So long as the imported goods remained uncleared and obligation provided under the rules and regulations to submit Bill of Entry was not discharged, the contravention would continue to operate until corrective steps were taken by the Company and the persons in charge of the affairs of the Company. The contravention referred to in Section 10(6) of the FEMA Act is a continuing actionable offence. If so, the Company and the persons managing the affairs of the Company remain liable to take corrective measures in right earnest. Regulation 6 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 provides for the period within which the foreign exchange ought to be surrendered if the Company was not wanting to take delivery of the goods imported. That, however, does not mean that the contravention ceased to exist beyond the specified period. On the other hand, after the specified period as predicated in regulation 6 had expired, it would be a case of deemed contravention until rectified. To get benefit of the proviso to Section 42(1), the appellant should have pleaded and proved that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention and made every effort to rectify the contravention in right earnest. [Paras 11, 13][73-H; 74-A-B; 75-C-D]
1.3 Once it is held that the contravention is a continuing offence, the fact that the appellant was not looking after the affairs of the Company in the year 2000 would be of no avail to the appellant until corrective steps were taken in right earnest after his taking over the management of the Company and in particular after becoming aware about the contraventions. No error was committed by the adjudicating authority in finding that the appellant was also liable to be proceeded with for the contravention by the Company of which he became the Managing Director and for penalty therefor as prescribed for the contravention of Section 10(6) read with Sections 46 and 47 of the FEMA Act read with paragraphs A-10 and A-11 (Current Account Transaction) of the Foreign Exchange Manual 2003-04. The first appellate authority and the High Court justly affirmed the view so taken by the adjudicating authority. [Paras 14, 15][76-D, G; 77-A] M/s. Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627: [1970] 1 SCR 753 – distinguished.
Chairman, SEBI v. Shriram Mutual Fund & Anr. (2006)
5 SCC 361 : [2006] 2 Suppl. SCR 833; Director of Enforcement v. M.C.T.M. Corporation Pvt. Ltd. & Ors. (1996) 2 SCC 471 : [1996] 1 SCR 215; M/s. Gujarat Travancore Agency, Cochin v. Commissioner of Income Tax, Kerala, Ernakulam (1989) 3 SCC 52 : [1989] 2 SCR 1000; Securities and Exchange Board of India v. Cabot International Capital Corporation (2005) 123 Comp Cas 841 (Bom) – referred to.
Corpus Juris Secundum, Vol. 85, page 580, paragraph 1023 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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