Vicarious liability under foreign exchange law requires company guilt first; penalty for export-proceeds default was sustained.
Liability of a company director under section 68(1) of the Foreign Exchange Regulation Act, 1973 depends on a prior finding that the exporter-company itself committed the underlying contravention; without such a finding, vicarious penalty cannot be sustained. In contrast, a penalty for non-realisation of export proceeds under section 18(2) read with section 18(3) was sustained where the foreign buyer's insolvency and the request for instalments were not supported by material sufficient to displace the adjudicating findings, and the delay weighed against relief.
Issues: (i) Whether a director could be held liable under section 68(1) of the Foreign Exchange Regulation Act, 1973 when the exporter-company was not held guilty of the underlying contravention; (ii) whether the penalty imposed for non-realisation of export proceeds under section 18(2) read with section 18(3) of the Foreign Exchange Regulation Act, 1973 was liable to be sustained.
Issue (i): Whether a director could be held liable under section 68(1) of the Foreign Exchange Regulation Act, 1973 when the exporter-company was not held guilty of the underlying contravention.
Analysis: Liability under section 68(1) was treated as dependent on the company first being found to have committed the contravention. The adjudication order imposed penalty on the appellant in his capacity as director, but recorded no finding of guilt against the exporter-company. In that situation, the statutory basis for deeming the director guilty was absent, and the order could not stand on the same facts while exonerating the company.
Conclusion: The penalty against the appellant as director was unsustainable and was set aside in favour of the assessee.
Issue (ii): Whether the penalty imposed for non-realisation of export proceeds under section 18(2) read with section 18(3) of the Foreign Exchange Regulation Act, 1973 was liable to be sustained.
Analysis: The second appeal involved non-realisation of export proceeds on facts where the foreign buyer had become insolvent and the plea for relief was not supported by material sufficient to dislodge the adjudicating authority's findings. The request for payment in instalments was also declined in view of the long delay and the appellant's failure to comply with the earlier instalment proposal.
Conclusion: The penalty in the second appeal was sustained and the appeal failed.
Final Conclusion: One penalty was set aside because the company itself had not been found guilty, while the other penalty for non-realisation of export proceeds was maintained. The matter was thus disposed of with relief only in relation to the director-linked liability.
Ratio Decidendi: Vicarious liability on a company officer cannot be sustained under section 68(1) unless the company itself is first found to have committed the contravention.
TaxTMI 
AI Drafter ✕
TaxTMI 
