2016 (9) TMI 1344 - AT - FEMA

Company and Directors Penalized for Export Proceeds Misappropriation under FERA

Directorate of Enforcement Versus Brig. Kapil Mohan

The Adjudicating Authority found that the company and its directors were involved in the misappropriation of export proceeds. Penalties were imposed on ... Guilty under Sections 18(2) and 18(3) read with Section 58 of FERA, 1973 - liability by a deeming fiction - criminal liability fastened against in charge and responsible for the conduct of the business of the company - Held that:- No evidence has been lead by the Enforcement Directorate in the Adjudication Proceedings to the effect that the respondents were in-charge and were responsible for the conduct of the business of the company. Vicarious liability as has been held by the Hon’ble Supreme Court can only be inferred against the company for the requisite statements in the complaint are made so as to make accused therein vicariously liable for offence committed by company along with averments in a petition contending that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. No vicarious liability on the part of the respondents herein has been pleaded and proved, therefore, vicarious liability cannot be inferred ipso facto by the Adjudicating Authority. We do not find any latent or patent illegality, irregularity or infirmity in the Adjudication Order. The Revision in our opinion has no merits and is liable to be dismissed. Issues Involved:1. Competence of the authority to issue show cause notice.2. Responsibility and involvement of directors in the contraventions.3. Realization of export proceeds and compliance with FERA provisions.4. Vicarious liability of directors.Detailed Analysis:1. Competence of the Authority to Issue Show Cause Notice:The respondents challenged the competence of the authority to issue the show cause notice dated 19-3-2002. They argued that at the relevant time, the noticees were not in charge and responsible for the business. The Adjudicating Authority, after considering the replies, decided to hold Adjudication Proceedings.2. Responsibility and Involvement of Directors in the Contraventions:The respondents, including Rakesh Mohan, Mrs. Comilla Mohan, R.D. Mohan, Brigadier Kapil Mohan, Jaywant Singh, B.D. Bali, and J.J. Choksey, denied their involvement in the day-to-day operations of the company. They contended that they were not responsible for the business at the relevant time and provided various reasons, such as resignation from the company, non-attendance of board meetings, and specific roles assigned by external entities like GSFC.The Adjudicating Authority found that the company and its directors had not been above board since the beginning. It was concluded that the directors, particularly Rakesh Mohan and Rohit Sahu, were involved in the misappropriation of export proceeds. However, the rest of the directors were not found to be involved in the day-to-day functions of the company at the relevant time, and no penalty was imposed against them.3. Realization of Export Proceeds and Compliance with FERA Provisions:The investigation revealed that M/s. Mohan Carpets had exported goods worth 81,459.76 pounds and F.F. 1,72,834.78, but the export proceeds were yet to be brought back to the country. The Amnesty granted by RBI was subject to the realization of the export proceeds, and RBI had no intention to waive the realization. The Adjudicating Authority noted that the company made no attempt to bring back the export proceeds, causing loss of revenue and foreign exchange to the country. Consequently, penalties of Rs. 50 lakhs each were imposed on the Noticee Company, Rakesh Mohan, and Rohit Sahu for violating Section 18(2) and Section 18(3) of FERA, 1973.4. Vicarious Liability of Directors:The revisionist contended that the Adjudicating Authority erred by not holding other directors guilty under Sections 18(2) and 18(3) read with Section 68 of FERA, 1973. They argued that these directors were associated with the exports and responsible for the contraventions. However, the Adjudicating Authority found no specific evidence against these directors to prove their involvement in the contraventions.The Tribunal referred to judgments from the Hon’ble Supreme Court and Delhi High Court, emphasizing that vicarious liability can only be inferred if specific averments are made in the complaint, proving that the directors were in charge and responsible for the conduct of the business at the relevant time. Since no such evidence was provided by the Enforcement Directorate, vicarious liability could not be inferred against the directors.Conclusion:The Tribunal found no latent or patent illegality, irregularity, or infirmity in the Adjudication Order. The revision petition was dismissed, and each party was ordered to bear its own costs. Copies of the judgment were sent to both parties.