2016 (7) TMI 1341 - AT - FEMA

Non-executive director wins appeal due to lack of notice and ex parte order

Pankaj Gupta Versus Enforcement Directorate

Pankaj Gupta Versus Enforcement Directorate - 2017 (349) E.L.T. 633 (ATFE) Issues Involved:1. Non-realization of export proceeds.2. Service of Show Cause Notice (SCN) and adjudication order.3. Liability of non-executive director.4. Principles of natural justice and right to be heard.Issue-wise Detailed Analysis:1. Non-realization of Export Proceeds:The company, M/s. Sashak Noble Metals Ltd., failed to realize export proceeds within the stipulated period, violating Section 8 of FEMA, 1999, and Regulations 9 and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The total outstanding amount was 5117000 USD, equivalent to Rs. 23,02,65,000. The Adjudicating Authority found the company and its directors guilty of these contraventions and imposed penalties.2. Service of SCN and Adjudication Order:The appellant contended that he was not served with the SCN or the adjudication order. He only became aware of the proceedings when his brother visited the Enforcement Directorate in connection with another matter. The Tribunal found that there was no clear evidence that the SCN or the adjudication order was served on the appellant. The original order was supplied to the appellant in 2010, indicating that it was not communicated to him earlier.3. Liability of Non-executive Director:The appellant argued that he was a non-executive independent director appointed only for the Indore project and had no involvement in the company’s export activities. The Tribunal noted that the appellant was primarily an employee of Sahara Industrial Services Pvt. Ltd. and was deputed to set up a gold refinery project at Indore. The appellant had resigned from the company before the adjudication proceedings began. The Tribunal emphasized that merely being a director does not make one liable for the company’s actions unless it is proven that the director was in charge of and responsible for the conduct of the business.4. Principles of Natural Justice and Right to be Heard:The Tribunal highlighted the importance of adhering to the principles of natural justice, particularly the right to be heard (audi alteram partem). The appellant was not given an opportunity to defend himself as he was not served with the SCN or the adjudication order. The Tribunal found the adjudication order to be ex parte, non-speaking, and violative of the principles of natural justice.Conclusion:The Tribunal concluded that the respondent failed to prove the service of the SCN and adjudication order on the appellant. The appellant was not involved in the disputed transactions and was only a non-executive director for the Indore project. The adjudication order was based on inferences without corroborative evidence and was therefore set aside. The appeal was allowed, and the pre-deposit amount, if any, was ordered to be refunded.