The Supreme Court said that Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992 (FT Act) is a penal provision and the same must be strictly construed.

The Court was dealing with an appeal filed by a company against the Director General of Foreign Trade.

The two-Judge Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan observed, “There is no allegation against the appellant or its predecessor of making an export or import in contravention of the export and import policy. Section 11 (2) is a penal provision. It must be strictly construed. Thus, the demand for penalty cannot be sustained. Hence, we set aside the impugned judgments and orders of the learned Single Judge and Division Bench. We also set aside the Order-in-Original dated 16th July 2004 (Annexure P-3) by which the impugned penalty was imposed.”

Senior Advocate Vinay S. Navare represented the appellant while Advocate Aakansha Kaul represented the respondents.

In this case, the appellant company had filed a writ petition before the Karnataka High Court against the order imposing a penalty of Rs. 23,38,882/- under the provisions of Section 11(2) of FT Act. The same was dismissed and the writ appeal against the order of the Single Judge was dismissed. Karnataka Malladi Biotics Limited obtained an Export Promotion Capital Goods Licence, which enabled it to import certain capital equipment at a concessional rate of customs duty. Under the licence, Karnataka Biotics was permitted to import capital goods worth Rs. 23,38,882/- equivalent to US$ 64,987 CIF value, subject to the condition of the appellant exporting the finished goods worth US$ 2,59,948 and earning an equivalent amount in a freely convertible foreign currency within five years from the date of the licence. Karnataka Biotics imported goods as permitted under the licence and commenced commercial production. However, the Board for Industrial Finance and Reconstruction (BIFR), in its meeting, declared Karnataka Biotics as a sick unit under Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).

The said company submitted a rehabilitation proposal to the operating agency and as Karnataka Biotics had enjoyed the benefit of concessional duty, a demand notice was issued by the Commissioner of Customs, making a demand for the differential duty of Rs. 5,38,525/- from Karnataka Biotics. As the said company could not pay the demanded amount, a sum of Rs. 4,86,800/- was recovered by enforcing the bank guarantee furnished by the said company. On June 3, 2003, the BIFR sanctioned Karnataka Biotics' rehabilitation scheme under Section 18 of SICA and the respondent passed an Order-in-Original imposing a penalty of Rs. 23,38,882/- on Karnataka Biotics for non-fulfilment of export obligation under the licence. An appeal preferred before the appellate authority against the said demand was dismissed, and a review filed before the Central Government was rejected. Hence, a writ petition was filed before the High Court but it was dismissed and therefore, the appellant approached the Apex Court.

The Supreme Court in the above context of the case noted, “In the present case, there is no allegation made by the respondents against the appellant's predecessor of making or attempting to make any export or import in contravention of the FT Act, any Rules or orders made thereunder, or the foreign trade policy. Under the license granted to the appellant’s predecessor, there was an obligation to export finished goods by earning foreign exchange equivalent to USD 2,59,948 within a period of five years.”

The Court added that the allegation is of the failure to abide by the obligation to export the finished goods within a period of five years and so, there is no allegation of attempting to make an export or import, which is covered by Section 11(2).

Accordingly, the Court allowed the appeal and set aside the impugned judgments and orders.

Cause Title- M/s. Embio Limited v. Director General of Foreign Trade & Ors. (Neutral Citation: 2024 INSC 408)


Appellant: Senior Advocate Vinay S. Navare, Advocates Yashvardhan, Smita Kant, AOR Apoorv Shukla, and Advocate Prabhleen A. Shukla.

Respondents: Advocate Aakansha Kaul, AOR Raj Bahadur Yadav, Advocates Diksha Rai, and Bhuvan Mishra.

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