2023 (6) TMI 1058 - HC - FEMA

Court quashes proceedings in Foreign Exchange Regulation Act case due to lack of evidence.

The court quashed the proceedings in Case No. C-2481/2002 against all accused persons, including the petitioner, under Sections 56 and 68 of the Foreign ... Contravention of Section 8(1) and 9(1)(a) of FERA by the Company - petitioner and other individuals working for the Company were made vicariously liable for the alleged contravention by the Company by virtue of Section 68 of the Act - HELD THAT:- As in view of order of the Special Director, ED, the court quashed the proceedings in respect of the company alone, (the sole petitioner before it). As considering the status of the present case, which has been dropped by the complainant in respect of all the accused persons, the proceedings in Case pending before the Learned Metropolitan Magistrate, 11th Court, Calcutta under Sections 56 and 68 of the Foreign Exchange Regulation Act, 1973 is liable to be also quashed in respect of all the petitioners therein including the petitioner in this revision. Revisional application is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether criminal proceedings under Section 56 read with Section 68 of the Foreign Exchange Regulation Act, 1973 can continue against individuals vicariously charged for alleged contraventions by a company where the Enforcement Directorate in adjudication proceedings has dropped the show cause notice against the company and the individuals on merits. 2. Whether a High Court order quashing criminal proceedings in respect of the company alone (the sole petitioner in that revision) precludes continuation of proceedings against other individuals who were arraigned only under Section 68 of the Act, when the adjudicatory authority had already dropped the proceedings against all noticees. 3. Whether the continued prosecution of individuals in such circumstances amounts to an abuse of the process of law and warrants quashing of the complaint against all accused persons. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Continuance of criminal proceedings against individuals vicariously charged under Section 68 where the Enforcement Directorate adjudication dropped proceedings on merits Legal framework: Section 56 creates offences by a company under the Act; Section 68 renders directors and officials vicariously liable for contraventions by the company. Adjudicatory proceedings (civil) under Section 50 and criminal proceedings under Section 56/68 may be separately instituted by the Enforcement Directorate. Precedent treatment: The Court relied on the Special Director, Enforcement Directorate's adjudicatory order dropping proceedings against the company and individual noticees, and on the Court's earlier exercise of revisional jurisdiction quashing criminal proceedings against the company where departmental proceedings had exonerated it. No contrary authority was invoked to sustain parallel criminal prosecution of individuals solely under Section 68 after exoneration of the company. Interpretation and reasoning: Section 68 operates by rendering individuals liable for violations committed by the company; its invocation presupposes proved contravention by the company. The adjudicatory authority's finding that charges against the company were not proved removes the predicate for vicarious liability. Therefore, continuation of criminal proceedings against individuals who were charged only under Section 68 lacks the necessary foundational finding and is unjustified. The Court emphasized the Special Director's express reasoning that charges against individual noticees 'fail automatically' if charges against the company are not proved. Ratio vs. Obiter: Ratio - where adjudicatory proceedings on the same allegations have resulted in the company and individual noticees being exonerated on merits, criminal proceedings against individuals charged only under Section 68 cannot be sustained and are liable to be quashed. Obiter - general observations about abuse of process and harassment arising from delay, though grounded in the facts, are ancillary to the principal holding. Conclusion: Criminal proceedings against individuals arraigned solely under Section 68 must be quashed when the adjudicating authority has dropped proceedings against the company and the individuals on merit, since the condition precedent for invoking Section 68 no longer exists. Issue 2 - Effect of a High Court revision order quashing proceedings in respect of the company alone on proceedings against other accused persons Legal framework: Revisional jurisdiction can quash proceedings where continuation would be an abuse of process; however, the scope of an order may be confined to parties before the Court. Administrative/adjudicatory orders dropping proceedings can have broader application if they expressly address other noticees. Precedent treatment: The Court considered a prior High Court quashing that expressly applied only to the company (the sole petitioner in that revision) and contrasted it with the Special Director's order that dropped proceedings against the company and all individual noticees. The Court treated administrative finality of the adjudicatory order as determinative for all accuseds even where a subsequent revisional order had only named the company. Interpretation and reasoning: The Court distinguished between the narrow effect of a revisional order confined to a petitioner before it and the broader effect of an adjudicatory order which, on its face, drops proceedings against all noticees. Where the Enforcement Directorate, in adjudication, has dropped proceedings against all noticees and attained finality, a later High Court order quashing the complaint as to the company alone cannot justify continued criminal proceedings against other accuseds who were exonerated administratively. The Court relied on the Special Director's explicit finding that charges against individual noticees 'also failed automatically' consequent to the company's exoneration, treating that determination as binding for criminal proceedings to avoid abuse of process. Ratio vs. Obiter: Ratio - an adjudicatory order dropping proceedings against all noticees on merits extinguishes the predicate for criminal prosecution against individuals even if a subsequent revisional order quashes proceedings only for the company; the Court will quash remaining proceedings to prevent abuse. Obiter - commentary on the legal significance of the revisional order's limited nomenclature in isolation from the adjudicatory finding. Conclusion: The adjudicatory dropping of proceedings against all noticees requires that criminal proceedings be quashed against all accused persons, notwithstanding a prior revisional order that formally named only the company as petitioner. Issue 3 - Abuse of process and oppressive continuation of proceedings where criminal complaint persists after administrative exoneration Legal framework: Courts must prevent abuse of process and protect against vexatious and oppressive prosecutions; continuance of criminal proceedings lacking reasonable prospect of success may be quashed in the interest of justice. Precedent treatment: The Court referred to its own earlier quashings in analogous circumstances where both civil and criminal proceedings had been instituted and the civil adjudication exonerated the company and officers. Those prior quashings were applied by analogy to the present facts. Interpretation and reasoning: Prolonged pendency (17 years in the record) of criminal proceedings against an individual, when the adjudicating authority and the High Court have effectively exonerated the company and when the individual was charged only vicariously, renders continuation vexatious and oppressive. The Court held that such continuation constitutes an abuse of process, particularly given the final administrative determination and intervening judicial order; equity and justice demand quashing to prevent harassment and futility of prosecution. Ratio vs. Obiter: Ratio - where administrative exoneration and intervening judicial findings leave no real prospect of conviction, continued prosecution is oppressive and an abuse of process, justifying quashing of the criminal complaint. Obiter - observations on the petitioner's age, retirement, and debilitating effects are factual considerations supporting the equitable exercise of the Court's power but not independent legal grounds. Conclusion: The continued prosecution under the circumstances was vexatious, oppressive and amounted to an abuse of the process of law; the complaint was therefore quashed in respect of all accused persons.