2026 (2) TMI 1215 - AT - FEMA

Continuing corporate liability remains enforceable after striking off; directors remain liable but penalties may be mitigated.

Whether penalties survive corporate striking off and whether directors are individually liable were addressed. The tribunal applied corporate continuity ... Liability of a company struck off the register - continuing liability of directors after striking off - pre-deposit requirement u/s 19(1) - penalty u/s 13(1) - mens rea not required for imposition of civil penalties - power of appellate forum to reduce penalty in the interests of justice - Liability of a company struck off the register - pre-deposit requirement under Section 19(1) of FEMA - 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. 60,00,000/- vide Impugned Order dated 28.09.2018 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 filed by M/s Skanda Marines Pvt. Ltd. Penalty under Section 13(1) of FEMA - There is nothing in the Section which can indicate directly or indirectly requirement of mens rea. Words like “willful”, “deliberately”, “intentionally” etc. are missing. 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 Appellants have 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, the ends of justice shall be met on reduction of the penalty on the individual Appellants to Rs. 30,000/- each. The amounts of pre- deposit already made shall be adjusted towards the reduced penalties. Issues: (i) Whether a penalty imposed on a company continues to be payable after the company has been struck off the register; (ii) Whether the directors are liable for penalties imposed under FEMA and whether the penalty on the individual directors should be reduced.Issue (i): Whether a penalty imposed on a company continues to be payable after the company has been struck off the register.Analysis: Section 248(6) and Section 250 of the Companies Act, 2013 preserve the continuity and enforceability of liabilities of a company even after its name is struck off and require sufficient provision for discharge of liabilities. Section 19(1) of the Foreign Exchange Management Act, 1999 mandates deposit of penalty at the time of filing an appeal unless the Appellate Tribunal dispenses with the deposit to avoid undue hardship. The statutory framework thus contemplates continued liability and procedural pre-deposit obligations despite dissolution by striking off.Conclusion: The penalty imposed on the company remains payable notwithstanding that the company has been struck off; failure to make the statutory pre-deposit warranted dismissal of the company's appeal.Issue (ii): Whether the directors are liable for penalties imposed under FEMA and whether the penalty on the individual directors should be reduced.Analysis: Section 42(1) of FEMA preserves liability of directors where the corporate contravention is established. Section 13(1) of FEMA provides for civil penalties without language requiring mens rea. Judicial authorities cited support that mens rea is not essential for imposition of civil fines for statutory contraventions; however, the Tribunal retains the power to temper penalties for proportionality and equity. The adjudicatory finding that the directors were responsible for conduct of the company was sustained, but equitable reduction was considered appropriate on the facts.Conclusion: The individual directors are liable for the contraventions; their penalties are reduced to Rs. 30,000 each, with pre-deposits adjusted accordingly.Final Conclusion: The appeal by the company is dismissed for non-compliance with the statutory pre-deposit requirement and the directors' appeals are partly allowed limited to reduction of individual penalties; overall the decision upholds continuing enforceability of corporate liabilities after striking off while permitting equitable mitigation of director penalties.Ratio Decidendi: A penalty under FEMA is a civil consequence enforceable against a company even after striking off pursuant to Sections 248(6) and 250 of the Companies Act, 2013, directors remain liable for corporate contraventions under Section 42(1) of FEMA, and mens rea is not a prerequisite for imposing civil penalties under Section 13(1) of FEMA while the Appellate Tribunal may moderate penalties on equitable grounds.