2022 (7) TMI 667 - HC - Customs

Court quashes penalty orders against Mr. Bhatt due to procedural flaws and lack of evidence

The court quashed the penalty orders against Mr. Bhatt, finding them void due to violations of natural justice and lack of evidence of his involvement in ... Levy of penalty on deceased husband of appellant (non-executive director of the company) - Advance License scheme - non-fulfilment of export obligation on the part of the company - defaulter under Foreign Trade (Development and Regulation) Act, 1992 - vicarious liability of Director of the company - HELD THAT:- There is nothing in the impugned orders as to what was the role of each director and how Mr. Bhatt was a directing mind or will of TPI. This would run contrary to the principle of vicarious liability which requires detailing the circumstances under which a director of a company can be held liable. No doubt, a corporate entity is an artificial person which acts through its officers, directors, managing director / chairman etc. It is the cardinal principle of criminal jurisprudence that where there are allegations of vicarious liability, then there has to be sufficient evidence of the active role of each director. There has to be a specific act attributed to a director or the person allegedly in control of management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company. From the impugned orders, it is clear that the entire charge undisputedly, is levelled against TPI for not fulfilling the advance licence obligations. No notice was admittedly issued to petitioner in petitioner's name. That being the case, there was a clear violation of the principles of natural justice. In point of facts, prejudice has been actually caused to Mr. Bhatt. This is so because the show-cause-notice was not issued in the name of Mr. Bhatt or even to his correct address. Even show-cause-notice issued to TPI did not contain specific allegation against Mr. Bhatt to which he could reply. No opportunity as such was given to Mr. Bhatt to represent against the proposed imposition of penalty. Obviously, Mr. Bhatt was not heard before the impugned orders were passed whereby penalty has been imposed upon him. The proceedings against Mr. Bhat were void ab initio. If only a notice had been sent to Mr. Bhatt identifying the specific acts attributable to him, Mr. Bhatt could have represented against the imposition of any penalty. He could have placed on record various facts and circumstances to show that even if any offence was committed by TPI, he had no hand in it. All these circumstances, if he were able to establish them, would have absolved him of the liability of penalty. Even on the question of prejudice, the impugned order imposing the penalty on Mr. Bhatt could not be sustained. Petition disposed off. Issues Involved:1. Validity of the penalty orders against Mr. Bhatt.2. Compliance with principles of natural justice.3. Requirement for Mr. Bhatt to apply for deletion of his name from the Import Export Code.4. Vicarious liability of directors for the acts of the company.Detailed Analysis:1. Validity of the Penalty Orders Against Mr. Bhatt:The petitioner, the wife of the late Mr. Bhatt, challenges the penalty orders issued by respondent No. 2 against TPI India Ltd and its directors, including Mr. Bhatt. Mr. Bhatt had resigned as an independent non-executive director of TPI on 10.03.1999, and this resignation was duly filed with the Registrar of Companies. Despite this, his name appeared in the impugned orders. The court noted that Mr. Bhatt's resignation and his non-involvement in the day-to-day management of TPI were undisputed facts.2. Compliance with Principles of Natural Justice:The court emphasized that no notice was issued to Mr. Bhatt personally. Notices were addressed to TPI, which failed to inform Mr. Bhatt. The court held that this was a clear violation of the principles of natural justice, as Mr. Bhatt was not given an opportunity to present his case or defend himself against the allegations. The court cited the Gujarat High Court's judgment in Om Vir Singh Vs. Union of India, which held that failure to issue a show-cause notice to individual directors and provide them with an opportunity to be heard constitutes a violation of natural justice.3. Requirement for Mr. Bhatt to Apply for Deletion of His Name from the Import Export Code:Respondent No. 2 argued that Mr. Bhatt should have applied to delete his name from the Import Export Code after his resignation. The court found this argument baseless, noting that there was no requirement for such an application. The court expected respondent No. 2 to verify the current directors of TPI from the Registrar of Companies and issue notices accordingly. The court criticized respondent No. 2 for not conducting a proper inquiry.4. Vicarious Liability of Directors for the Acts of the Company:The court analyzed the principle of vicarious liability, noting that a corporate entity acts through its officers and directors. For a director to be held liable, there must be specific evidence of their active role and responsibility for the company's actions. The court found that the impugned orders did not specify any acts attributable to Mr. Bhatt or establish his control over TPI's management. The orders merely held TPI and its directors collectively responsible without detailing the role of each director. Thus, the court concluded that the penalty on Mr. Bhatt was unjustified.Conclusion:The court quashed the impugned penalty orders against Mr. Bhatt, holding them void ab initio due to the violation of principles of natural justice and lack of evidence of Mr. Bhatt's involvement in TPI's alleged defaults. The petition was allowed, and the rule was made absolute in favor of the petitioner.