Director liability under FEMA Section 42(1) requires actual involvement in company affairs, not just designation

The Appellate Tribunal under SAFEMA dismissed a revision petition concerning director liability under FEMA provisions. The Tribunal held that liability under Section 42(1) depends on actual role in company affairs, not mere designation as director. Two directors were found not actively involved in policy-making or day-to-day operations, while another director was identified as the main person in-charge who handled company affairs and foreign bank accounts. The Enforcement Directorate failed to record statements from the respondent directors or produce evidence showing their responsibility for company conduct. The Tribunal upheld the lower authority's order exonerating the non-active directors.

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Issues:
1. Interpretation of Section 42(1) of FEMA regarding liability of individuals in a company for contravention of provisions.
2. Examination of the role and responsibility of Directors in the conduct of business for determining liability under FEMA.
3. Assessment of evidence and arguments presented to establish the guilt of the Respondents.
4. Consideration of the legal precedent and judgments related to the liability of Directors in company offenses.

Analysis:

1. The judgment dealt with the interpretation of Section 42(1) of FEMA, which holds individuals in a company liable for contraventions. The Appellate Tribunal analyzed the role of the Respondents in the company and the specific provisions they were charged with under FEMA and related regulations.

2. The Tribunal considered the arguments presented by the counsel for the Revisionists, emphasizing that the liability under Section 42(1) depends on the role played by individuals in the affairs of the company, not merely on their designation. The Tribunal referred to the judgment in Shailendra Swarup versus Deputy Director, Enforcement Directorate to highlight the importance of being in charge and responsible for the conduct of the company's business.

3. Despite the absence of representation from the Respondents, the Tribunal reviewed the documentary evidence available on record. It was argued that the Adjudicatory Authority failed to appreciate the involvement of the Respondents in the business of the company, leading to the imposition of penalties on M/s. Subba Microsystems Ltd. and its Chairman and a retired Director.

4. The Tribunal examined the statements and submissions made by the Chairman and the retired Director of the company, highlighting their active involvement in the affairs and day-to-day activities of the company. However, it was observed that the other Directors were not actively engaged in the company's operations, decision-making, or policy formulation, which influenced the Tribunal's decision.

5. Ultimately, the Tribunal concluded that the Respondents, although Directors of the company, were not actively involved in its affairs to be deemed guilty of the contraventions under FEMA. The lack of evidence or statements indicating their responsibility for the conduct of the business led to the dismissal of the Revision Petition, upholding the impugned order and disposing of the case accordingly.

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