The main legal point established in the judgment is the validity of AEPC's actions in releasing additional quotas, calculating quota utilization, and imposing penalties on non-utilization, which were found to be in the public interest and aligned with the contractual obligations of the exporters.

V.K. Jain, J.

1. Section 5 of the Foreign Trade (Development & Regulation), Act, 1992 provides for formulation and announcement of the Export and Import Policy by the Government of India and amendment of the said policy from time to time. Section 11 of the said Act provides that no export can be made except in accordance with the provisions of the said Act, Rules and Orders made thereunder, as also the Export and Import Policy for the time being in force. Pursuant to the aforesaid provision, the Government of India, vide notification dated 12.11.1999 announced the policy for allotment of entitlements for the year 2000-2004 in respect of the countries where the exports are covered by restraints under the provisions of Agreement on Textile and Clothing. Similar policy was notified by the Government for previous years as well. Under the said policy, export of garments and knit-wears to certain countries such as USA, Canada and European Union known as „Quota Countries” could be undertaken only on the basis of quota allotted to the exporters by the respondents – Apparel Export Promotion Council (AEPC) which was to function as Quota Administering Authority, in terms of the said notification. The quota for the export for each allotment was to be allocated under the following system at the rate indicated against each of them:

(ii) Quantities that become available from time to time on account of surrenders, flexibilities or otherwise shall also be allocated under the First Come First Served (FCFS) System.

2. The allotment of quota was to take place in two parts – each consisting of 50% of the allotment. The first part of the quota was valid from the date of allotment till 31st May of the year whereas the second part was valid till 30th September of the said year. In case of the allotment valid till 31st May, transfer could be allowed till the last date and the un-utilized quota lapsed. In case of allotment valid till 30th September, transfer could be allowed till 20th September and the original quota holder or the transferee could get an extension till 31st December on payment of the Bank Guarantee (BG) and Earnest Money Deposit (EMD) at the specified rates.

The BG submitted by the exporters while seeking extension of un-utilized quotas expressly guaranteed that the exporter shall abide by all the terms and conditions of the allotment mentioned in the notification dated 12.11.1999 issued by the Government of India, as amended from time to time and Policy Circular No.99/20 dated 16.11.1999 issued by AEPC, as amended from time to time on the Scheme for Export of Garments and Knit-Wears from India and also any other instructions and/or directions issued by AEPC and would produce proof of shipment of the goods in the manner and under the terms and conditions prescribed by AEPC. In the event of exporter’s failure to utilize the export entitlements, as stipulated in the said notification and circular or in the event of his failing to submit proof of shipment to prove such utilization in the prescribed manner and within a prescribed period, the guarantor was to pay the guarantee amount due and payable under the guarantee, without any demur and raising any further controversies, merely on the first written demand from AEPC. Any such demand made on the guarantor was to be conclusive as regards the amount due and payable by the guarantor as per the guarantee.

The First Come First Serve (FCFS) Quota was introduced with a view to boost new exporters who did not have the confirmed quota in their hands so that they get an opportunity to undertake export of readymade garments to the quota countries.

3. Noticing that the exporters were not able to utilize 100% of the endorsed quota which resulted in loss of precious foreign exchange to the country, besides causing denial of such quota to the genuine exporters who were in a position to undertake exports, and also to reduce wastage of quota which tarnishes the image of the country and aff