2026 (2) TMI 534 - AT - FEMA

Liability of struck off company and directors under FEMA; company appeal dismissed, individual penalty reduced and adjusted.

A company struck off the register remains liable for previously imposed civil penalties because liabilities continue after striking off; consequence: ... Liability of a company struck off the Register - Continuing personal liability of directors after striking off - Pre-deposit requirement for appeals u/s 19(1) of FEMA - Civil penalty u/s 13(1) of FEMA and absence of mens rea - Proportionality in reduction of penalty - HELD THAT:- It is clear that Sub- Section (6) of Section 248 read with Section 250 of the Act of 2013 that the liabilities and obligations shall continue and for the purpose sufficient provision has to be made for the discharge of its liabilities. We therefore find that the Appellant Company after imposition of cumulative penalty of Rs. 1,01,13,971/-vide Impugned Order dated 29.07.2019 continues to be liable for the payment of penalty, even after having been struck off. In view of the failure of the Appellant Company to comply with the statutory provisions of Section 19(1) of FEMA, we dismiss the Appeal No. FPA-FE-62/CHN/2019 filed by M/s Vijeta Marines Pvt. Ltd. Imposition of penalties - HELD THAT:- The Judgment of SEBI in the matter of The Chairman, SEBI v. Shriram Mutual Fund [2006 (5) TMI 191 - SUPREME COURT] cited the Judgment in Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors. [1996 (1) TMI 351 - SUPREME COURT] wherein even for FERA 1947 it was held that the contravention shall be breach of a civil obligation which would attract penalty irrespective of the fact whether the contravention was made with any guilty intention or not. The Judgment (supra) in the matter of SEBI, also cited a number of previous Judgments wherein it was held that mens rea is not an essential element for imposing penalty for breach of civil obligations. The Judgment (supra) has clarified that the case of Hindustan Steel Ltd. Vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] pertained to criminal/ quasi criminal proceeding as the provisions of the Act under consideration in that case imposed a punishment of imprisonment and fine as well. The present appeal deals with provisions which are strictly civil obligations and penalty for the contraventions of these provisions are imposable under Section 13(1) of FEMA which provides for penalty only, up to thrice the sum involved in such contravention. The individual Appellant has also pleaded to make the penalties proportionate. Since on evaluation of the gravamen of the charges, it is argued that the penalty has been imposed for the inadvertent failures. Thus, to the ends of justice shall be met on reduction of the penalty on the individual Appellant to Rs. 1,00,000/-. The amounts of pre-deposit already made shall be adjusted towards the reduced penalty. Accordingly, the Appeal No. FPA-FE-62/CHN/2019 filed by M/s Vijeta Marines Pvt. Ltd. is dismissed. The Appeal No. FPA-FE- 101/CHN/2023 filed by Shri N. Sreenivas is partly allowed. Issues: (i) Whether a company struck off the Register of Companies is relieved of liabilities imposed by an Adjudicating Authority under FEMA and whether failure to make the statutory pre-deposit under Section 19(1) of FEMA warrants dismissal of the company's appeal; (ii) Whether the penalty imposed on the individual director under Section 13(1) and Section 42 of FEMA should be reduced.Issue (i): Whether a company struck off from the Register remains liable to pay penalties imposed under FEMA and whether failure to comply with the pre-deposit requirement under Section 19(1) of FEMA mandates dismissal of its appeal.Analysis: The Tribunal examined Chapter XVIII of the Companies Act, 2013, including Section 248(6) and Section 250, which preserve the continuance and enforceability of liabilities of a company even after its name is struck off and require that sufficient provision be made for discharge of liabilities. Section 19(1) of FEMA prescribes a statutory pre-deposit of penalty at the time of filing an appeal, subject to the Tribunal dispensing with the deposit in cases of undue hardship on conditions to safeguard realisation. The Appellant Company did not make the required pre-deposit and did not obtain dispensation under Section 19(1).Conclusion: In favour of Respondent.Issue (ii): Whether the penalty imposed on the individual director should be moderated.Analysis: The Tribunal reviewed Section 13(1) of FEMA and authoritative precedents establishing that mens rea is not an essential element for imposing civil penalties for statutory contraventions; penalties attach upon establishment of contravention. The Tribunal considered the gravity and circumstances of the contraventions and the appellant's submissions seeking proportionality and reduction of penalty.Conclusion: In favour of Appellant.Final Conclusion: The Tribunal dismissed the appeal by the struck-off company for non-compliance with the pre-deposit requirement and partly allowed the appeal of the individual director by reducing his penalty; thus one appeal is dismissed and the other is partly allowed.Ratio Decidendi: A company struck off under Sections 248 and 250 of the Companies Act, 2013 remains liable for its obligations and penalties imposed under FEMA and failure to comply with the statutory pre-deposit under Section 19(1) of FEMA warrants dismissal of the company's appeal; however, penalties on individuals may be moderated on assessment of proportionality despite absence of mens rea being immaterial for civil penalties under Section 13(1) of FEMA.