1977 (7) TMI 114 - HC - FEMA

High Court rules in favor of director challenging notice under Foreign Exchange Regulation Act, 1947, citing vicarious liability.

Bhagwati Prasad Khaitan Versus The Special Director

The High Court considered a challenge to a notice under the Foreign Exchange Regulation Act, 1947, implicating a director of a company for alleged ... - Issues:1. Challenge to notice under Foreign Exchange Regulation Act, 19472. Vicarious liability of directors for company's contravention under Section 4(2) of the Act3. Maintainability of application under Article 226 of the Constitution4. Substantial injury due to exposure to adjudication without cause5. Ultra vires nature of the Constitution (Forty-second Amendment) Act, 1976Analysis:1. The petitioner challenged a notice under the Foreign Exchange Regulation Act, 1947, issued for alleged contravention of Section 4(2) by a company. The notice implicated the petitioner, a director of the company, in the alleged violation related to a forward foreign exchange contract for import orders. The High Court considered the validity of the notice and the grounds for adjudication proceedings under the Act.2. The issue of vicarious liability of directors for company contraventions under the Act was raised. The notice implicated several directors, including the petitioner, based on their positions in the company. The court analyzed Section 23-C of the Act, which deems individuals in charge of the company's business guilty of contraventions. The court referred to a Supreme Court decision to determine the scope of liability for directors and concluded that the petitioner could not be proceeded against based on the allegations in the notice.3. The court examined the maintainability of the application under Article 226 of the Constitution post the Constitution (Forty-second Amendment) Act, 1976. It considered the availability of remedies for the injury of exposure to adjudication proceedings without cause. The court referenced previous judgments to support the view that no remedy existed for such a situation, justifying the application under Article 226.4. The court addressed the substantiality of the injury caused by exposure to adjudication without proper grounds. It rejected the argument that the injury was insubstantial, emphasizing the significance of being subjected to quasi-criminal consequences without valid cause. The court differentiated this situation from precedents and upheld the petitioner's claim of substantial injury.5. Lastly, the court briefly mentioned the potential argument regarding the ultra vires nature of the Constitution (Forty-second Amendment) Act, 1976, but noted that it was not necessary to consider this point due to the decision on the main issues. The court allowed the petitioner's application, quashed the impugned notice, and restrained the respondents from acting on it concerning the petitioner, while leaving room for a fresh notice based on proper grounds.