Vicarious liability of company directors requires proof of responsibility, consent or connivance; mere directorship is insufficient.

Penal vicarious liability for a company director under foreign exchange law requires proof that the person was in charge of and responsible for the company's day-to-day business at the relevant time, or that the contravention occurred with consent, connivance or neglect; mere directorship is insufficient. The text also notes that inordinate, unexplained delay in serving notice can materially prejudice the defence where records are stale or unavailable, and such prejudice may vitiate the proceedings. On these principles, liability could not be sustained without the requisite factual foundation and proof of actual involvement.

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Issues: (i) Whether delay in service of notice caused prejudice to the appellants in the preparation of their defence; (ii) whether the respondent discharged the initial burden of showing that the appellants were responsible for and in charge of the day-to-day affairs of the company; (iii) whether there was evidence that the alleged contravention occurred with consent, connivance or neglect attributable to the appellants.

Issue (i): Whether delay in service of notice caused prejudice to the appellants in the preparation of their defence.

Analysis: The alleged contravention related to 1987, while the first effective summons to the concerned appellant were issued only in 2001. The record showed prolonged inactivity in tracing the appellants, destruction of old records, and repeated service attempts at outdated addresses. In such circumstances, the delay was not attributable to the appellants and materially impaired their ability to produce documents and meet the allegation.

Conclusion: The delay caused serious prejudice and this issue was decided in favour of the appellants.

Issue (ii): Whether the respondent discharged the initial burden of showing that the appellants were responsible for and in charge of the day-to-day affairs of the company.

Analysis: Liability under the relevant provision could not rest merely on the fact that a person was a director. The order against two appellants did not record any finding that they were in charge of or responsible for the company's day-to-day business, and the appellate order also proceeded on an incorrect assumption that directorship alone was sufficient. As to the third appellant, the materials relied upon were treated as sufficient to raise a prima facie case, but the appeal still succeeded on the distinct ground of prejudice caused by delay.

Conclusion: The burden was not discharged against the appellants found liable solely on the basis of their directorship, and this issue was decided in favour of those appellants.

Issue (iii): Whether there was evidence that the alleged contravention occurred with consent, connivance or neglect attributable to the appellants.

Analysis: The record contained no substantive finding establishing consent, connivance or neglect on the part of the concerned appellants. Mere membership of the board or designation as director was insufficient to fasten liability under the penal provision absent proof of actual involvement.

Conclusion: No such evidence was established and this issue was decided in favour of the appellants.

Final Conclusion: The penalty orders could not be sustained because vicarious liability under the foreign exchange law had not been properly established against the concerned appellants, and the belated initiation of proceedings had caused grave prejudice to the defence.

Ratio Decidendi: For penal vicarious liability to attach to a company director, the authority must record and prove that the person was in charge of and responsible for the conduct of the business at the relevant time, or that the contravention occurred with consent, connivance or neglect; mere directorship is insufficient, and inordinate unexplained delay causing prejudice can vitiate the proceedings.

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