Abbas Ali vs Directorate Of Enforcement & Anr. on 22 September, 2008

Rajasthan High Court - Jodhpur

S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

IN THE HIGH COURT OF JUDICATUARE FOR RAJASTHAN AT JODHPUR.

JUDGMENT

(1) S.B. Civil Misc. Appeal No. 161/2008

Smt. Nazneen vs. The Director of Enforcement & anr.

(2) S.B. Civil Misc. Appeal No. 180/2008

Abas Ali vs. The Director of Enforcement & anr.

(3) S.B. Civil Misc. Appeal No. 182/2008

Taiyabi Khilona vs. The Director of Store Enforcement & anr. under Section 54 of Foreign Exchange

Regulation Act, 1973 read with Section 35 of Foreign Exchange Management Act, 1999 against the judgment and order dated 21.11.2007 passed by the learned Appellate Tribunal for Foreign Exchange in Appeals No.73/05, 72/05 and 71/05 respectively.

Date of Judgment: September 22, 2008. PRESENT

HON'BLE MR. PRAKASH TATIA, J.

REPORTABLE

S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

Mr. Dinesh Mehta for the appellants.

Mr. V.K. Mathur for the respondents.

BY THE COURT:

These three appeals have been filed under Section 54 of the Foreign Exchange Regulation Act, 1973 ( for short 'the Act of 1973') read with Section 35 of the Foreign Exchange Management Act, 1999( for short 'the Act of 1999'), by M/s Taiyabi Khilona Store and its two partners, being aggrieved against the judgment and order dated 21.11.2007 passed by the Appellate Tribunal for Foreign Exchange in Appeal Nos.71/05, 72/05 and 73/05. These three appeals have been preferred because of the reason that the appellant-Firm and its partners have been held guilty for violation of the provisions of Section 18(3) of the Act of 1973 and penalty of Rs.1,00,000/- has been imposed upon the Firm and its two partners separately.

Brief facts of the case are that M/s Taiyabi Khilona Store, a partnership firm having its two partners Abas Ali and Smt. Nazneen exported goods through its courier M/s Container Movement (Bombay Transport Private Limited) to its buyer M/s PAK Britannnia S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

Limited, London (England). The said goods were worth £ 16553. According to the appellants, the document relating to the said export work sent to the Bank in London on 6.2.1996 for collection. The bill in this regard was drawn on D.P. Basis, according to which the buyer can retire the documents by making payment to bank on reaching of the consignment at its destination. However, the buyer did not take the delivery of the goods and according to the appellant, the appellant made his all efforts to recover the sale proceeds. Since the buyer did not take the delivery of goods, therefore, the authorities at London confiscated the goods at London. In view of the above, according to the appellant, the sale was not affected as the goods were not taken by the buyer and for constituting a sale, it is necessary that seller sales the goods to the buyer and buyer receives the goods. Since the goods were auctioned by the authorities at London by exercising statutory power, therefore, it was not a sale of goods at all and, therefore, the authorities committed serious error of law by punishing the appellants with the penalty as mentioned above under the provisions of Section 50 of the Act of 1973. S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

It is also submitted that penalty cannot be imposed upon a person who made all bonafide efforts to realise the sale consideration. According to the learned counsel for the appellants, the appellants made their all efforts which is evident by the various documents which have been placed by the appellants in these appeals, which according to the learned counsel for the appellants, were also before the authorities below, which clearly shows that the appellants made all serious and bonafide efforts for recovery of the amount with full intention to brought the foreign currency within the India.

The learned counsel for the appellants lastly contended that if it is held that the appellant-Firm was guilty under Section 50 and was liable to be penalized for its fault then the authorities have committed serious error of law by imposing penalty upon the Firm as well as upon the partners. According to the learned counsel for the appellants, the Firm is a compodium of the individual and is not an entity akin to company which can have its own assets and liability irrespective of the assets liability of its Director. In addition to above, according to the learned counsel for the S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

appellants even if it is held that the any of the appellants, partner of the firm could have been held responsible for conduct of the business of the Firm then there is no finding that any of the partners himself was responsible for and was incharge of the activities of the Firm and because of lapse of that partners, the foreign currency has not reached to India. The learned counsel for the respondents vehemently submitted that the appeal under Section 54 of the Act of 1973 lies only on the question of law and in this case, only the question of fact is involved and that the appellant did not make any effort for bringing within the territory of India the foreign currency which is the consideration for the goods sent to the foreign country, therefore, this Court may not interfere with the orders which have been passed by the two authorities after carefully looking into the material placed by the appellants. It is also submitted that the explanation appended to Section 68 of the Act of 1973 very clearly provides that the Firm is also included in the definition of the Company under the provisions of the Act of 1973 and, therefore, penalty can be iimposed against the Firm as well as against firm's s S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

partners separately. It is also submitted that the authorities have found that the partners were responsible for the business of the firm and further it is submitted that even if it has not been said so in the impugned orders even then the partners are liable for the penalty and they are supposed to show that they were not the incharge of the firm.

I considered the submissions of the learned counsel for the parties and perused the relevant provisions of law. Section 18(3) of the Act of 1973 is as under:- "18(3) Where in relation to any goods to which a notification under cl. (a) of sub-section (1) applies the prescribed period has expired and payment therefor has not been made as aforesaid, it shall be presumed, unless the contrary is proved by the person who has sold or is entitled to sell the goods or to procure the sale thereof, that such person has not taken all reasonable steps to receive or recover the payment for the goods as aforesaid and he shall accordingly be presumed to have contravened the provisions of sub- section (2)."

The above section clearly provides that where in relation to S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

any goods to which a notification under cl. (a) of sub-section (1) applies the prescribed period has expired and payment therefor has not been made as aforesaid, that is, as mentioned in the proceeding section, then the law presumes that a person has not taken all reasonable steps to receive or recover the payment for the goods . There is further presumption that because of that such person has contravened the provisions of sub-section (3) of Section 18 of the Act of 1973. The person referred in sub-section (3) of Section 18 are (1) the person who has sold or (2) is entitled to sell the goods and (3) entitled to procure the sale thereof. These three categories of persons have been mentioned in sub-section (3) of Section 18 of the Act of 1973 and that makes it very clear that a person who has sold the goods is liable and required to prove that he bonafidely made efforts for bringing the foreign currency, second is the person who is entitled to sell the goods and third is the person who is entitled to procure the sale proceeds thereof. For the sake of argument, if it is presumed that sale is not completed with the delivery of the goods to the buyer then the appellants in the facts of the case is the firm and its parners are S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

the persons who were authoriesed to sell the goods and also could have procured the sale price. Therefore, where buyer has not received the delivery of the goods but the goods have been transported to the foreign country then it is as per the the Act of 1973, it is duty of such exporter to bring the money (the foreign currency) within the Indian territory. The learned counsel for the appellants vehemently submitted that the appellants have not gained any thing in this transaction and in fact suffered due to of the fault of the buyer and in fact he suffered loss. It is immaterial whether the seller gained from the transaction or suffered loss in the transaction. It is not a tax on income. It is also immaterial whether in fact he received the sale consideration or not, because of the reason that the provisions of Section 18 clearly provides that seller is required to show his efforts for brining within the territory of India the foreign currency for export of goods from the India. The provisions referred are not for the benefit of the person who has sold or who made efforts to sell the goods out side India because of the reason that for his own property, every citizen can have its own discretion and may waive his entire sale consideration S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

but that cannot exonerate the seller from having liability for not bringing within the territory of India the foreign currency for the goods which he exported. In view of the above reason, I do not find any merit in the contention of the learned counsel for the appellants that since the buyer has not received the value of the goods, therefore, the sale is not complete and, therefore, the penalty cannot be imposed upon the appellant-Firm. So far as the penalty upon the partners of the firm are concerned, it is abundantly clear from the explanation appended to Section 68 that by virtue of deeming clauses made by the proviso to Section 68 wherever reference of Company has been given in Section 68 of the Act of 1973, the firm is also to be dealt with in the same manner as any Company by virtue of explanation (1) to Section 68 of the Act of 1973. The firm's partners can be held liable for the mischief committed during the course of business in the name of the firm who are incharge and are responsible for the conduct of the business of the company. There is lot of difference between work of company and company's status and the liabilities and responsibilities as compared to status and S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

liabilities of the of the partners of the firm. It is also true that there may be sleeping partners and some passive partners and some active partners. Because of this fact only, it appears that the provisions applicable generally for the company for determination of the liability for commission of offence, have been made applicable to the firm by making specific provisions, i.e., explanation (1) to Section 68 of the Act of 1973. In view of the above reasons, the firm's partners who are responsible for the conduct of the business and were responsible and incharge at the relevant time, can be personally held liable. In this case, the firm was found guilty and this cannot be disputed in view of the fact that mere writing one after another letters to the buyer by the seller is not a sufficient and can not be treated bonafide effort for recovery of the sale price by the exporter and, therefore, the firm's liability is upheld.

However, so far as liability of the partners is concerned, it will be worthwhile to mention here that one of the partners is male and another is female. There is a reference of mail partner Abas Ali's ailment in the order passed by the Assistant Director of S.B.Civil Misc. Appeal No.161/2008

Smt. Nazneen vs. The Director of Enforcement & anr & two connected appeals..

the Enforcement Department of Government of India and because of that, time was sought for filing reply. Then in that situation, it is difficult to presume that the another partner Smt. Nazneen was the person responsible for the business and was incharge of the firm's affairs at the relevant time. Then in that situation, in absence of any specific finding that Abas Ali, partner of the firm, who was also sick, was fit and was doing the business and was incharge for the conduct of the entire affairs of the firm. The order passed by the Assistant Director, Enforcement Department of the Government of India dated 30.11.2004 as well as the appellate order dated 21.11.2007 qua the individual partner, cannot be sustained.

In view of the above, the S.B. Civil Misc. Appeal No.182/2008 filed by appellant Taiyabi Khilona Store is dismissed, whereas S.B.Civil Misc. Appeal No. 161/08 filed by appellant Smt. Nazneen and S.B.Civil Misc. Appeal No.182/2008 filed by appellant Abas Ali are partly allowed and the penalty against these two partners are set aside.

(PAKASH TATIA),J.

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