S P KRISHNA, FORMER MANAGING DIRECTOR; KOLAR DISTRICT CO-OPERATIVE MILK PRODUCTS SOCIETIES UNION LIMITED Vs. DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT (FEMA)

JUDGEMENT

(1.) These two appeals are filed by the Former Managing Director of Kolar District Co-operative Milk Producers Societies Union Limited as well as the Kolar District Cooperative Milk Producers Societies Union Limited challenging the legality and correctness of the order dated 20th June 2008 made in Appeals No.675/2003 and 676/2003 passed by the Appellate Tribunal for Foreign Exchange, New Delhi, confirming the order No.DD/95/BZ/BAN/2003/FERA/VS dated 14-10-2003 passed by the Deputy Director, Directorate of Enforcement (Foreign Exchange Management Act), Bangalore, whereby imposing penalty of Rs.1,25,000/- on the Ex-Managing Director and a sum of Rs.4,00,000/- on the Kolar District Co-operative Milk Producers Societies Union Limited for violating Sections 8(3) and 8(4) of Foreign Exchange Regulation Act, 1973 (hereinafter referred to as the Act ).

(2.) The case of the appellants in both the appeals is that the appellant in MFA No.9214/2008 is a Co-operative Milk Producers Societies Union Limited registered under the Cooperative Societies Act, engaged in procurement of Milk from the members of the Society in Kolar District and distributing the same in the District of Kolar and the State of Karnataka. The appellant in MFA No.9213/2008 is the then Managing Director of the said Society. In the month of July 1998, the appellant-Society in its meeting passed a resolution to purchase a reconditioned Butter Making Machine from an Australian Company. Accordingly, placed a purchase order with M/s.Lynjef International, Australia for purchase of Pasilac Continuous Butter Making Machine inclusive of two numbers 15 MT Deep Freeze Cabin container at a cost of 1,05,000 Australian Dollars. The terms of purchase order was that the machine should be delivered within four weeks at Chennai Port by Sea and from there, the machine had to be delivered to Kolar by road. The mode of payment was by opening a letter of credit by the appellant-Society. The letter of credit was for a period of 180 days. Accordingly, the appellant approached the Canara Bank to open a letter of credit in favour of the Australian Company. The payment of letter of credit was to be effected only after the Society reported to M/s.Lynjef International, Australia regarding satisfactory performance of the supplied machine. As per the conditions, the custom duty has to be borne by the supplier. Until the machine was delivered, erected and commissioned to the satisfaction of the Society, the Banker should not effect payment to the supplier. As per the terms and conditions, the supplier M/s.Lynjef International, Australia, accepted the purchase order and confirmed to supply the Butter Making Machine to the Society. As per the terms and conditions, the machine ought to have reached Kolar during the 2nd or 3rd week of September 1998, however no information was received from the supplier. Since the payment had to be made to the supplier for machine by the Canara Bank only after the Society informs the Bank about the delivery and satisfactory performance of the machine, the Society was under the bonafide belief that the payment would not have been made by the Canara Bank to the supplier.

(3.) The Canara Bank wrote a letter to the Society on 12-2-1999 stating that the letter of credit has been de-linked from 12-2-1999 and liability of the Society was crystallized to an extent of Indian Rs.28,91,832/- including commission at 0.15% and requested the Society to remit the same along with interest at 17.34% p.a. from the date of de-linking till the date of remittance of the bill amount. The Society, in response to the said letter informed the Bank that, they had not received any machinery and unless the machinery is installed, the payment cannot be made. However, the Canara Bank vide its letter dated 12-5-1999 directed the Society to remit the devolved liability in respect of foreign letter of credit and also stated that the question of giving any extension of letter of credit do not arise. They further threatened the appellants that if the Society fails to pay the said amount, the amount of Rs.50,00,000/- of the appellant which is in the Bank, would be prematurely foreclosed. In view of the said threat given by the Bank, the appellant-Society issued a Cheque in favour of the Canara Bank and requested the Bank to release necessary documents to enable the Society to receive the Butter Making Machine. The authorized dealer of the appellant, i.e. the Canara Bank in violation of conditions of the purchase order released the amount in favour of the Australian Company, though they have not sent the Butter Making Machine in view of violation of the conditions of the purchase order. The appellant-Society by its letter dated 28-12-1999 addressed to the M/s.Lynjef international, Australia seeking for refund of 1,05,000 Australian Dollars with interest, since the Butter Making Machine was not supplied, even though the letter of credit amount has already been drawn. In response to the said letter, M/s.Lynjef International, Australia wrote a letter dated 27-08-2001 apologizing for the inordinate delay and promising to dispatch the new machine. In spite of the said assurance, the supplier Company failed to supply the Butter Making Machine even after four months. In spite of repeated reminders and requests, the supplier has failed to respond the same. In view of that the appellant-Society has approached the National Consumer Disputes Redressal Commission, New Delhi complaining against the Canara Bank as well as the supplier- Company.