The Madras High Court has set aside penalties imposed by the Enforcement Directorate (ED) under the repealed Foreign Exchange Regulation Act (FERA), 1973, after finding that the unrealised export proceeds were within the permissible limit and eligible for write-off under Reserve Bank of India (RBI) guidelines.
A Division Bench of Justice S.M. Subramaniam and Justice C. Saravanan delivered the verdict, quashing the orders passed by the Appellate Tribunal for Foreign Exchange and the Special Director of Enforcement and noted that the exporter had already refunded the incentives claimed from the Customs Department, showing bona fide conduct.
The central issue before the Court was whether an exporter could be penalised under Section 50 of FERA, 1973 for non-realisation of a small portion of export proceeds, even when the shortfall was minor, recovery efforts were made, and the exporter had sought write-off approval under RBI’s circulars.
Between 1991 and 1995, the exporter shipped goods to multiple overseas buyers but failed to realise export proceeds amounting to ₹1.09 crore out of total exports exceeding ₹13.7 crore. Several foreign buyers, located in Germany and the UK, became untraceable despite follow-up efforts through Indian embassies.
The ED initiated proceedings under Section 18(2) of FERA for failure to realise the export payments within the prescribed time and levied a penalty of ₹10 lakh in total. The Appellate Tribunal for Foreign Exchange upheld the penalty.
Meanwhile, the Customs Department issued a demand notice for refund of duty drawback availed on the same exports. The exporter complied fully by repaying the incentives amounting to ₹5.28 lakh, acknowledging the unrealised proceeds.
The Exporter contended that the shortfall in export realisation was below 10%, well within the write-off limit under RBI’s A.P. (DIR Series) Circular No. 61 dated December 14, 2002. The Indian Overseas Bank, as the authorised dealer, had verified all recovery efforts and recommended write-off to the RBI. The exporter had refunded export incentives to Customs and had not gained any undue benefit. The case did not involve a substantial question of law and was therefore maintainable under Article 226 of the Constitution.
The Enforcement Directorate contended that the exporter failed to produce adequate proof of recovery efforts. The ED argued that non-realisation amounted to violation of Section 18(2) of FERA, attracting penalty under Section 50.
The Bench examined the evolution of India’s foreign exchange laws—from FERA, 1947, to FERA, 1973, and finally FEMA, 1999—and observed that the regulatory framework had shifted from strict control to facilitative management.
The Court found that the shortfall of 5.45% in export realisation was minor and within RBI’s permitted write-off range. The exporter had reversed the duty drawback received, ensuring no misuse of export incentives. RBI circulars empowered authorised dealers to approve write-offs in genuine cases where buyers were untraceable. Penalty under Section 50 of FERA could not be sustained, as the failure was not deliberate and fell within the ambit of permissible business loss.
Citing the Supreme Court’s decision in Union of India v. Citibank N.A. (2022), the Bench reiterated that FERA proceedings could not continue mechanically after the law’s repeal, especially when RBI norms under FEMA allowed leniency in such cases.
Allowing the appeals, the Court quashed the penalty orders issued by the Enforcement Directorate and the Appellate Tribunal, holding that the exporter was entitled to write off the unrealised amount.
“Even if there was a contravention under Section 18 of FERA, the appellants are entitled for write-off of the unrealised export bills… Penalty under Section 50 is not applicable in these circumstances,” the Bench ruled.
Case Details
Case Title: P.Balasubramaniam Versus The Appellate Tribunal for Foreign Exchange
Case No.: W.A.Nos.12 and 57 of 2023
Date: 26/09/2025
Counsel For Petitioner: Karthik Ranganathan
Counsel For Respondent: N.Ramesh, Special Public Prosecutor
