Vallabhbhai Surani Vs Directorate of Enforcement (Appellate Tribunal Under SAFEMA at Delhi)
FEMA Strict on Export Realisation: Tribunal Upholds Director Liability, Relieves Non-Executive Director
The Appellate Tribunal under SAFEMA partly allowed the appeals arising from penalties imposed under Section 7 of FEMA, 1999 read with Export Regulations, against directors of M/s J.B. Diamonds Ltd. for non-realisation of export proceeds and non-fulfilment of export obligations against advance receipts. The Tribunal noted that a substantial amount of export proceeds (over USD 117 million across 417 invoices) remained unrealised beyond the prescribed period, and the appellants failed to demonstrate concrete recovery efforts, such as legal proceedings, claims before liquidators, or obtaining extension from RBI/authorised dealer.
The defence that the default was due to global recession (2008–09), buyer defaults, and liquidation of foreign entities was rejected for lack of credible documentary evidence and effective follow-up actions. The Tribunal emphasized that mere correspondence or internet extracts do not establish due diligence, and statutory obligation under Section 7 to realise export proceeds remains strict. It also upheld violation of Regulation 16(1)(i), holding that failure to export goods within one year against advance receipts itself constitutes contravention, irrespective of whether refund was made.
On the issue of director liability under Section 42(1), the Tribunal held that all directors who were in charge of and responsible for the conduct of business are deemed liable unless they prove lack of knowledge or due diligence. Since no such evidence was produced, liability was upheld for all directors except one (Smt. Kalavatiben V. Surani), who was found to be merely a housewife with no role in day-to-day affairs, and her appeal was allowed.
Accordingly, the Tribunal confirmed the penalties against the company and other directors, while granting relief only to the said director.
FULL TEXT OF THE ORDER OF APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
1. The present appeals have been filed against the order of the Adjudicating Authority dated 28.10.11 u/s 19 of the Foreign Exchange Management Act, 1999 (FEMA, 1999) wherein it was held that M/s J.B Diamonds Ltd. has contravened provisions of section 7 of FEMA, 1999 read with Regulation 8,9,13 and 16(1)(i) of Foreign Exchange Management (Exports of Goods & Services) Regulation, 2000. The directors (appellants herein) of the J.B. Diamonds Ltd. have contravened the aforesaid provisions and penalized with a sum of Rs. 5,00,00,000/-as well as Rs. 5,000/- each as detailed in the impugned order.
