Delhi HC sets aside penalty against Executive Director for export obligation violations under FTDR Act Section 11(2)

The Delhi HC set aside a penalty order against an Executive Director of a public limited company for non-fulfillment of export obligations under the FTDR Act. The court found that the show-cause notice and original order failed to provide reasoning for fastening personal liability on the petitioner, violating principles of natural justice. Under Section 11(2) of the FTDR Act, personal liability requires the person to have contravened or abetted the contravention, but the petitioner's involvement was limited to signing a power-of-attorney pursuant to a board resolution. The court held that authorities must specifically consider each director's role and provide reasons for personal culpability, which was absent in this case.

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Issues Involved:
1. Personal liability of a director for the company's export obligation defaults.
2. Territorial jurisdiction and forum non conveniens.
3. Delay in proceedings and its implications.
4. Impact of liquidation on director's liability.
5. Applicability of judgments related to director's liability.

Detailed Analysis:

1. Personal Liability of a Director:
The core issue was whether the petitioner, an Executive Director of the company, could be personally penalized for the company's failure to fulfill export obligations under the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act). The petitioner argued that he was not involved in the export obligations and that the show-cause notice and orders did not provide specific reasons for holding him personally liable. The court referenced previous judgments, notably the Krishna Kumar Bangur and Ved Kapoor cases, which established that personal liability of directors requires specific allegations and evidence of a duty or obligation that the director failed to fulfill. The court found that the orders lacked such specific allegations against the petitioner and thus could not sustain the personal penalty imposed.

2. Territorial Jurisdiction and Forum Non Conveniens:
The respondents challenged the jurisdiction of the Delhi High Court, arguing that the original order was passed in Mumbai. However, the court noted that the appellate authority was in Delhi, and previous proceedings had been entertained by the Delhi High Court, thus establishing jurisdiction. The court cited the Kusum Ingots case, which allows for writ petitions to be filed where part of the cause of action arises. The court concluded that it had jurisdiction as part of the cause of action arose in Delhi.

3. Delay in Proceedings:
The court observed significant delays in the proceedings, with the show-cause notice issued in 2003 for an obligation from 1997, and the penalty order passed in 2013. The court noted the lack of explanation for this delay and highlighted that such delays could impact the fairness of proceedings, especially when records and evidence might no longer be available due to the company's liquidation.

4. Impact of Liquidation on Director's Liability:
The petitioner argued that the company's liquidation in 1998 meant that all directors ceased to be directors and that records were with the official liquidator. The court acknowledged these facts and noted that the respondents failed to consider the implications of liquidation on the ability to fulfill export obligations or provide necessary documents. The court found that the orders did not adequately address these issues, further undermining the basis for the petitioner's personal liability.

5. Applicability of Judgments Related to Director's Liability:
The respondents relied on the Standard Charted Bank case to argue for the petitioner's liability as a director. However, the court found this case inapplicable as it pertained to the specific context of the Negotiable Instruments Act, which explicitly defines director liability. The court reiterated that without specific allegations and evidence of the petitioner's role in the export obligations, personal liability could not be imposed.

Conclusion:
The court set aside the impugned penalty order against the petitioner, finding no merit in the respondents' contentions and concluding that the orders failed to establish the petitioner's personal liability for the company's defaults. The petition was disposed of accordingly.

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