1972 Supreme(Cal) 165

HIGH COURT OF CALCUTTA
P. B. Mukharji, B. C. Mitra
THE JAY ENGINEERING WORKS LTD. - Appellant
Versus
M. G. WAGH - Respondent
A. F. O. O.  59  Of  1971
Decided On : JULY 14, 1972

Section 12 (2) of the Foreign Exchange Regulation Act, 1947 is not applicable to a case where the sale of goods has been completed and the only question is the repatriation of the sale proceeds to India.

Headnote:

FOREIGN EXCHANGE REGULATION ACT, 1947 - SECTION 12(2) - APPLICABILITY - SALE OF GOODS ON OUTRIGHT BASIS - NO OBLIGATION TO REPATRIATE SALE PROCEEDS WITHIN 6 MONTHS - SHOW CAUSE NOTICE ISSUED UNDER SECTION 12(2) - INVALID.

Fact of the Case:

The appellant, a manufacturer and seller of sewing machines and electric fans, exported goods to various countries including the United Kingdom. Before April 19, 1962, goods manufactured by the appellant were consigned to Merchant Engineering Ltd., London, on outright sale basis. On and from April 1, 1902, these goods were despatched to Usha Sales (P) Ltd. in the United Kingdom with whom the appellant had entered into a selling agency agreement. According to the appellant the price of Sewing Machines in United Kingdom had to be reduced in order to boost up sales which had declined by reason of competition from Japan, and the other European countries. By two notices both dated November 5, 1966, under Section 19 (2) of the Foreign Exchange Regulation Act, 1947, (hereafter referred to as the Act), the Deputy Director. Enforcement, Calcutta, required the appellant and Usha Sales (P) Ltd. to furnish certain information and documents regarding the export of Sewing Machines to the United Kingdom including the reasons for reducing the prices of the machines exported after 1961-62 and also certain claims for rebate and expenses made by Usha Sales (P) Ltd. By a letter dated January 4, 1967, the appellant furnished the information required and thereafter by a further notice dated July 6, 1967, also under Section 19 (2) of the Act, the appellant was called upon to furnish information and documents regarding the non-realisation of export proceeds of 14 G. R. I. Forms, of a total value of 17,462-15s. during the period from November 1962 to December 1965. On July 27, 1967, the appellant explained that foreign exchange in respect of 4 of the G. R. I. Forms had since been received in India and the proceeds of some other G. R. I. Forms had been received by its bankers. The State Bank of India, and also that attempts were being made to realise the balance out of the sum lying to the credit of Usha Sales (P) Ltd. in a U. K. Bank, Thereafter two notices were served upon the appellant by the first respondent. Both these notices are under Section 12 (2) of the Act. In the first notice, it is alleged that during the years 1962 to 1965. the appellant effected shipments of Sewing Machines to the United Kingdom, the full export value of which had not been received in India by the appellant and failure to realise the export value of the goods from the country of final destination within 6 months from the date of shipment of the goods in the prescribed manner, was a contravention of Section 12 (2) of the Act read with Central Government Notification No. 8 (8)-EF. I. 1/52 dated April 22, 1952. Particulars of the shipments giving the G. R. I. Form Nos. . dates and total invoice value were given in the annexure to the notice. 13 items of the total invoice value of 17,725-3s. with shipment dates between October 9, 1963, and December 14, 1965, were enclosed. The appellant and its Directors were called upon to show cause why adjudication proceedings under Section 23-D of the Act should not be held for the contravention of the statutory provisions. IN the second notice, it was alleged that the appellant had effected a number of shipments to the United Kingdom and it appeared that the full export value of the shipments had not been declared to the proper authorities and as such an amount of 12,395-8s. had not been received in India by the appellant in the prescribed manner and the failure to realise the export value of the goods from the country of final destination within 6 months from the date of shipment in the prescribed manner was a contravention of Section 12 (2) of the Act read with the Central Government Notification No. 6 (8)-EF. I. 1/52 dated April 22. 1952. It was alleged that the appellant and its Directors had rendered themselves liable to be proceeded against under Section 23 (1) (a) of the Act, and therefore the appellant and its Directors were called upon to show cause why adjudication proceedings under Section 23-D of the Act should not be held against them. In the annexure to this notice a list of 40 items with shipment dates between June 29, 1962, and 17-12-1965 were given but instead of the invoice value the C. I. F. prices before and after April 1, 1962, were disclosed and the difference of 12,095-3s. was shown as the amount of under-invoicing, BY two letters dated November, 26, 1968, the appellant denied the charges made against it in the show cause notice, and in particular the charge relating to under-invoicing contained in the second notice. The appellant claimed that the value declared was the invoice or the contract price. This was followed by a letter dated July 11, 1969, by the 3rd respondent by which the appellant was informed that after considering the cause shown by it, it was decided that adjudication proceedings under Section 23-D of the Act should be started against the appellant who was required to be present through a representative for a personal hearing on July 2, 1969. Aggrieved by the said adjudication proceedings the appellant obtained a Rule Nisi and also Ad Interim Injunction restraining the ad-judication proceedings.

Finding of the Court:

The Court held that Section 12 (2) of the Act was not applicable and could not be invoked in the facts of this case, for the adjudication proceedings against the appellant. It was held that the show cause notices were invalid as they were not in accordance with Section 12 (2) of the Act. It was further held that the appellant cannot be charged with the contravention of Section 12 (2) of the Act.

Issues: 1. Whether Section 12 (2) of the Foreign Exchange Regulation Act, 1947 is applicable to the facts of the case? 2. Whether the show cause notices issued under Section 12 (2) of the Act are valid? 3. Whether the appellant can be charged with the contravention of Section 12 (2) of the Act?

Ratio Decidendi: 1. Section 12 (2) of the Foreign Exchange Regulation Act, 1947 is not applicable to a case where the sale of goods has been completed and the only question is the repatriation of the sale proceeds to India. 2. The show cause notices issued under Section 12 (2) of the Act are invalid as they do not comply with the requirements of the said section. 3. The appellant cannot be charged with the contravention of Section 12 (2) of the Act as the said section is not applicable to the facts of the case.

Final Decision: The appeal was allowed. The judgment and order of trial Court were set aside. The Rule was made absolute. A writ in the nature of mandamus was issued upon the respondents commanding them. to forbear from giving any further effect to the show cause notices dated November 8, 1968 and the notice dated July 11, 1969, and from commencing any proceedings pursuant thereto. A writ Sn the nature of prohibition was issued prohibiting the respondents and each of them from giving any effect to the two show cause notices dated November 8, 1968, and the notice dated July 11, 1969.