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2018 SCC OnLine ATFEMA 6

In the Appellate Tribunal for Foreign Exchange Management Act

(BEFORE ANANYA RAY, MEMBER)

FPA-FE-78/MUM/2010
Baba Rayon Fabrics (P) Ltd. … Appellant;
Versus
Special Director, Directorate of Enforcement … Respondent.
FPA-FE-79/MUM/2010
Juned Yakub Motiwala … Appellant;
Versus
Special Director, Directorate of Enforcement … Respondent.
FPA-FE-78/MUM/2010 and FPA-FE-79/MUM/2010
Decided on March 8, 2018
Advocates who appeared in this case:
Shri K.I. Vyas, Advocate for the appellant
Mrs. Aagam Kaur & Shri Prashant Pandey, Legal Consultants for the respondent
JUDGMENT
FPA-FE-78/MUM/2010 & FPA-FE-79/MUM/2010
1. The appellant has filed the stay application which was heard on 05.01.2018. The
learned counsel for the appellant appearing on behalf of both the appeals pleaded for a
stay of the impugned order and stated that they have, both a prima facie case in their
favour as well on the ground of undue hardship. Hence he pleaded for a complete stay
of the pre-deposit of total amount of Rs. 29,00,000/- in both the appeals i.e. (i) M/s.
Baba Rayon Fabrics (P) Ltd., Surat (ii) Shri Juned Yakub Motiwala, Director.
2. The brief facts of the case is that M/s. Baba Rayon Fabrics (P) Ltd. allegedly
acquired and remitted foreign exchange abroad through an Indian bank for making
certain imports into India but failed to submit the necessary documentary evidence to
the authorized dealers evidencing the import, thus violating the provisions of FEMA.
3. The learned counsel for the appellant stated that the financial condition of the
company is precarious and they do not have any means to pay the penalty amount
and pleaded undue hardship. He further stated that the company is not functioning for
more than ten years. He also stated that they have a strong prima facie case. Hence
he submitted that a total stay may be granted against the pre-deposit and the appeal
be taken up for final hearing. In response the learned counsel for the respondent Smt.
Aagam Kaur states that there is no prima facie case in their favour, that they did not
submit the required documents proving any legal import, that they should have filed
the proof within sixty days which they failed to do and the entire case was initiated on
the basis of a complaint received from the Reserve Bank of India. Hence no stay is
merited.
4. I have given my considered thought to the above submissions and have also
gone through the records as placed before me. I agree with the learned counsel for the
respondent that it is an argueable case and hence it cannot be stated that they have a
prima facie case. With regard to the pleading of ‘undue hardship’ it would be relevant
to understand what ‘undue hardship’ means. The Supreme Court in the case of Banara
Valves Ltd. v. Commissioner of Central Excise, (2006) 13 SCC 347 observed:
“This is a matter within the special knowledge of the applicant for waiver and has
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to be established by him For a hardship to be ‘undue’ is must be shown that this

particular burden to observe or perform the requirement is out of proportion to the
nature of the requirement itself. The word ‘undue’ adds something more than just
hardship or a hardship is greater than the circumstances warrant.”
This was followed in many subsequent judgments also.
I have also seen their balance sheet for the year 2010-11 since the appeal was filed
in March 2010 and as per Section 19(1) of FEMA the appellant shall while filing an
appeal deposit the amount of such penalty.
The balance sheet of the 2010 & 2011 brings out the following facts:
I. The accumulated losses stand at Rs. 10.93 lakhs as on 31.03.2010, as against
the capital of Rs. 2,00,000/-. This has further deteriorated marginally as on
31.03.2011. There is therefore a huge capital erosion.
II. However, they have taken unsecured loan to the tune of Rs. 84.17 lakhs as on
31.03.2010 which has marginally increased as on 31.03.2011.
III. In addition, they have given loans/advances to some companies like Rajasthan
Petro Synthetics Ltd. and Sanghi Polyster Ltd. to the tune of almost Rs.
65,00,000/- plus interest.
IV. Almost the same position is reflected in their balance sheet of 2016-17.
5. Hence, from the above it is clear that while the company has not been working
and there is a capital erosion, nevertheless, they have both given advances/loans and
also taken unsecured loans. If they are in a position to secure and give loans,
notwithstanding their capital erosion it cannot be said that they have ‘undue
hardship’.
6. The ends of justice would be met if they are directed to pay fifty per cent of the
total penalty of Rs. 29,00,000/-. I accordingly order so. This amount may be paid
within sixty days from today, failing which, the appeal would be liable to be dismissed
as per provisions of FEMA.
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