Penal action and placing of an entity in Denied Entity List (DEL) by Director General of Foreign Trade (DGFT)
The Denied Entities List, also known as the ‘Black List’, is drawn under Rule 7 of Foreign Trade Regulation Rules1993 (from now on, referred to simply as ‘the rule’s). For a firm to be denied a license. The refusal to issue a license to a person under sub-Rule 7(2) shall not affect any action taken by the Directorate General of Foreign Trade authority under the Foreign Trade (Development & Regulations) Act, 1992 (from now on referred to as ‘the Act). Sub-Section 2 (g) of the Act defines the word ‘license’. These conditions cover various offenses/contraventions leading to the licensee’s refusal of an entity.
A. General instances leading to refusal of license
Although the Rules provide a wide range of conditions that will be the basis for the denial of licenses, we have provided a summary of the most common.
1. The most common reason for refusal of the license is when a firm fails to fulfill an Export Obligation (E.O.) under different export promotion programs like Export promotion Capital goods scheme (EPCG), Advance authorization scheme, etc. The demand notice will indicate that the firms cannot submit documents within the prescribed period. If the firm fails to do so, the DEL will place its name in it.
2. External agencies like the DRI, CBI, and ED have noticed certain instances. Request for information in connection to some investigations. Sometimes, DGFT authorities may recommend withholding additional licensing facilities from the firms under investigation. If routine information is required, it should be provided. If the communication contains recommendations to suspend/cancel licenses, then the information should be thoroughly examined from the perspective of denial of benefits under Rules/Act.
3. Sub-rule 7. (1) ( c ) of the Rules covers fraud and misdeclaration. Whenever it is brought to the attention of the DGFT authority that a license was obtained by fraud, forgery, misdeclaration, etc., the firm will be placed in DEL. The Directorate General of Foreign Trade authority will issue an order and suspend the IE Code. The head of the office will investigate the matter and submit a report to Headquarters within 15 days to show if any officials were involved in the fraud.
B. Section 9 of the Act, read with Rule 9 (suspension) and Rule 10 (cancellation), shall govern the policy and procedure for suspension or cancellation of licenses.
C. As with any executive power under the statute, the powers of refusal, suspension, or cancellation of licenses will require strict adherence to the principle of natural justice. This means that the DGFT authority will deny, suspend or cancel any license after giving the license holder a fair opportunity to be heard and then by recording a reasoned order in writing.
D. DEL management procedures:
1. The DEL order will specifically mention Section 15 of the Act as the basis for an appeal against the refusal of license.
2. Port offices will maintain a DEL that will include the firms’ names and their registered offices’ addresses. This will also include the addresses of their directors, proprietors, and directors. The database will be computerized and contain the IEC Number of the firm. Licensing benefits will not only be denied to the firms as legal entities but also to the individuals/persons owning/controlling these entities.
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