High Court quashes penalty against Director for lack of legal basis

The High Court set aside the order dismissing the appeal and upholding the penalty imposed on the petitioner, who was the Director of the company. The Court found that there was no legal provision permitting the recovery of a penalty from Directors personally. As the adjudication order was flawed and lacked a legal basis for imposing liability on the Director, the Court quashed the order directing the petitioner to pay the penalty amount. The matter was disposed of with no order as to costs.

---

---

Issues:
Challenge to legality and validity of order dismissing appeal and upholding penalty imposition on the petitioner.

Analysis:
1. The petitioner challenged the legality and validity of an order dated 9th April, 2010/13th April, 2010, where the appeal filed by the petitioner was dismissed, and an earlier order dated 5th February, 2008, imposing a penalty on the petitioner was upheld. The High Court issued a rule on 16th August, 2010, and granted ad-interim relief to the petitioner. The impugned order directed recovery of a penalty from the petitioner as he was the Director of the company at the relevant time.

2. The company in question had obtained an advance license for import with an export obligation. The petitioner was the Managing Director of the company during a specific period. The penalty was imposed under the Foreign Trade (Development and Regulation) Act, 1992, based on a show cause notice issued to the company. However, the petitioner claimed he was not served with any show cause notice or given a notice of personal hearing before the penalty was imposed.

3. The High Court noted that the petitioner's claims of not being served with the necessary notices were not denied in the affidavit in reply. The adjudication order proceeded on the basis that the obligations were on the company, and there was no mention of any basis for the Directors to be personally liable for the penalty imposed on the company.

4. The Court found that there was no provision in the Act permitting the recovery of a penalty from the Directors personally. The impugned order did not address the lack of provisions for imposing liability on Directors for the company's liabilities. Therefore, the High Court set aside the order dated 13th April, 2010, and quashed the adjudication order dated 5th February, 2008, to the extent it directed the petitioner to pay the penalty amount.

5. The Court decided not to remand the matter back for de novo consideration as the adjudication order was also flawed, as it attempted to recover the penalty from the Director without any legal basis. The petition was accordingly disposed of with no order as to costs.

---