Dismissed appeal upholds penalties for contravention of FEMA Act, MD's liability for ongoing offences

The appeal was dismissed, affirming penalties imposed on the Company and the appellant for contravention of Section 10(6) of the FEMA Act. The Court held the appellant, as Managing Director, responsible for the continued offence post-management change, emphasizing his failure to rectify the situation despite awareness. The judgment highlighted the liability of the person in charge for ongoing contraventions, dismissing arguments of non-responsibility for initial breaches.

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Issues Involved:
1. Prima facie contravention of Section 10(6) of the FEMA Act.
2. Responsibility for the contravention post-management change.
3. Applicability of Section 42 of the FEMA Act regarding contravention by companies.
4. Nature of the contravention as a continuing offence.
5. Liability of the Managing Director for actions of the company.

Detailed Analysis:

1. Prima Facie Contravention of Section 10(6) of the FEMA Act:
The adjudicating authority issued a show-cause notice on 19.5.2004, indicating a prima facie contravention of Section 10(6) of the FEMA Act. The Company had imported goods but failed to submit the Bill of Entry and did not take delivery, resulting in the goods being kept in a bonded warehouse. This was deemed a violation, warranting the issuance of a show-cause notice. The adjudicating authority concluded that both the Company and its Managing Director were guilty of the charge and imposed a penalty of Rs. 10,00,000 each.

2. Responsibility for the Contravention Post-Management Change:
The appellant argued that he took over the management of the Company in July 2002 and was not responsible for the initial contravention. However, the appellate authority noted that the appellant was aware of the imported goods and the need to clear them from the warehouse. Despite financial constraints, the appellant failed to take necessary steps to rectify the situation, leading to the continued contravention of Section 10(6) of the FEMA Act.

3. Applicability of Section 42 of the FEMA Act Regarding Contravention by Companies:
Section 42 of the FEMA Act states that every person in charge of and responsible to the company at the time of the contravention is deemed guilty. The appellant argued that he was not in charge at the time of the initial contravention. However, the High Court held that the contravention was a continuing offence, and the appellant, being in charge of the Company post-2001, was responsible for taking corrective measures, which he failed to do.

4. Nature of the Contravention as a Continuing Offence:
The High Court opined that the contravention was a continuing offence, as the obligation to submit the Bill of Entry and clear the goods from the warehouse remained unfulfilled. The contravention continued until corrective steps were taken. The Court cited the case of Chairman, SEBI Vs. Shriram Mutual Fund & Anr. to emphasize that mens rea is not essential for imposing a penalty for breach of civil obligations.

5. Liability of the Managing Director for Actions of the Company:
The appellant, as the Managing Director post-2001, was held liable for the continued contravention. The Court noted that the appellant was aware of the contravention and failed to take corrective measures. The appellant's argument that he was not responsible for the initial contravention was dismissed, as the contravention continued during his tenure. The Court emphasized that the appellant did not exercise due diligence to prevent or rectify the contravention, making him liable under Section 42 of the FEMA Act.

Conclusion:
The appeal was dismissed, affirming the penalties imposed on the Company and the appellant. The Court held that the appellant, as the Managing Director, was responsible for the continued contravention of Section 10(6) of the FEMA Act and failed to take necessary corrective measures. The judgment emphasized the nature of the contravention as a continuing offence and the liability of the person in charge of the company's affairs.

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