Directors cannot be held liable for FEMA violations solely based on directorship without proving actual involvement in transactions

The Appellate Tribunal for Foreign Exchange, New Delhi allowed the appeal against penalty imposed under Section 8 of FEMA, 1999 for non-realization of export bills. The AT held that the Adjudicating Authority erred in fastening liability on all directors merely based on their directorship status without establishing actual involvement in disputed transactions. The proceedings violated principles of natural justice as the appellant was not properly served with show cause notice and proceeded ex parte despite having left service during the relevant period. The AT found the adjudication order arbitrary and not in consonance with law.

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Issues Involved:

1. Non-realization of export proceeds by M/s. Aviquipo of India Ltd. and M/s. Tirumala Impex Pvt. Ltd.
2. Liability of directors under Section 42 of FEMA, 1999.
3. Alleged contravention of Section 8 of FEMA, 1999 and related regulations.
4. Ex parte proceedings and principles of natural justice.
5. Validity of penalties imposed on the companies and directors.

Issue-wise Detailed Analysis:

1. Non-realization of Export Proceeds:
The appeals relate to the failure of M/s. Aviquipo of India Ltd. and M/s. Tirumala Impex Pvt. Ltd. to realize export proceeds within the stipulated period, which was alleged to be in contravention of Section 8 of the Foreign Exchange Management Act, 1999, read with Regulation 9 and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The companies were charged with not taking necessary steps for the realization and repatriation of export proceeds, leading to adjudication proceedings against them.

2. Liability of Directors under Section 42 of FEMA, 1999:
The directors, including the appellant, were charged under Section 42 of FEMA, 1999, which extends liability to persons in charge of and responsible for the conduct of the business of the company at the time of contravention. The adjudicating authority held most directors liable, except those who could demonstrate non-involvement in day-to-day operations, such as R.K.T. Das and Bhupesh Patel, who were exonerated due to their non-executive roles.

3. Alleged Contravention of Section 8 of FEMA, 1999 and Related Regulations:
The adjudicating authority found both companies guilty of contravening Section 8 of FEMA and related regulations due to their failure to realize export proceeds. Penalties were imposed on the companies and the directors, including the appellant, who contested the charges by arguing lack of involvement in the export activities and lack of responsibility for the company's business conduct.

4. Ex Parte Proceedings and Principles of Natural Justice:
The appellant argued that the proceedings were held ex parte without proper service of show-cause notices or personal hearing notices, which violated principles of natural justice. The appellant claimed lack of knowledge of the proceedings, as notices were allegedly sent to incorrect addresses and not served personally. The tribunal acknowledged these arguments, noting the absence of evidence showing the appellant was in charge of the company's business activities.

5. Validity of Penalties Imposed:
The tribunal found the adjudicating authority's decision to impose penalties on the appellant and other directors to be erroneous, as there was no evidence or specific allegations that the appellant was responsible for the conduct of the company's business. The tribunal emphasized that merely being a director does not automatically entail liability unless involvement in the contravening activities is proven. The tribunal set aside the penalties, highlighting the lack of due process and the failure to adhere to principles of natural justice.

Conclusion:
The tribunal allowed the appeals, setting aside the adjudication orders and penalties against the appellant and other directors. It emphasized the need for sufficient service of notices and the importance of establishing direct involvement in contravening activities to impose liability. The tribunal's decision underscores the significance of adhering to principles of natural justice and ensuring fair proceedings.

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