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2020 (8) TMI 44
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....eminder issued by the Authorised Dealer, MXL had not submitted the Exchange Control copy of the custom bills of Entry/Postal Wrappers as evidence of import of goods into India. Enforcement Directorate wrote to MXL in the year 1991-1993 for supplying invoices as well as purchase orders. MXL on 09.07.1993 provided for four transactions and Chartered Accountant's Certificates for balance 16 amounts for which MXL's Bankers were unable to trace old records dating back to 1985. MXL amalgamated and merged into Xerox Modicorp Ltd. (hereinafter referred to as "XMC") on 10.01.2000. A show cause notice dated 19.02.2001 was issued by the Deputy Director, Enforcement Directorate to MXL and its Directors, including the appellant. The show cause notice required to show cause in writing as to why adjudication proceedings as contemplated in Section 51 of Foreign Exchange Regulation Act, 1973 (hereinafter referred to as "FERA, 1973") should not be held for contravention. Xerox Modi Corporation Ltd. (successor of MXL) replied the show cause notice dated 19.02.2001 vide its letter dated 26.03.2001. The Directorate of Enforcement decided to hold proceedings as contemplated in Section 51 of the ....
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....ly a part-time Director was only an afterthought. The High Court further held that the affidavit dated 04.07.2003 of the Company Secretary relied by the appellant does not appear to have been filed either before the Adjudicating Authority or the Appellate Tribunal and no such plea had been taken in the earlier communications. Shri Sundaram submits that the High Court committed error in dismissing the appeal of the appellant whereas neither there was any material nor any specific case of the Department that the appellant was in charge of and responsible for the conduct of business of the Company. The mere fact of Company-MXL in its reply to the notice dated 19.02.2001 having given the names of the 13 persons as Directors of MXL does not amount to stating that all the Directors were responsible for the conduct of business of the Company. The appellant could have been prosecuted and punished for the contravention of the provisions of FERA, 1973 only after returning a finding that it was the appellant who was responsible for the conduct of business during the relevant period when remittances in question were made by MXL. The Appellate Tribunal without recording any finding that appella....
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....r even responsible for the conduct of business of the Company at the relevant time was an afterthought, since, in the reply given by the Company Secretary dated 26.03.2001 no such plea was taken? (2) Whether the appellant has not brought any material on record either before the Adjudicating Authority or the Appellate Tribunal to prove that he was only a part-time, non-executive Director not responsible for the conduct of business of the Company at the time of commission of the offence? (3) Whether the Adjudicating Authority, Appellate Tribunal and the High Court erred in holding contravention of provisions of Section 8(3), 8(4) and Section 68 of FERA, 1973 by the appellant without their being any material that the appellant was responsible for the conduct of business of the Company at the time of commission of the offence and without recording any specific findings to that effect? POINT NO.1 10. As noted above, the High Court has rejected the plea of the appellant that he was part-time, non-executive Director not responsible for the conduct of business of the Company at the relevant period on the ground that the above plea is an afterthought since in reply given by the Compan....
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..../s Modi Xerox Ltd. Ground Floor, Hemkunt Tower, 98 Nehru Place, N. Delhi -19 And its Directors [As per fist attached]. Dear Sir /Madam, Subject: Adjudication proceedings in respect of Memo No. T-4/20/D2/2001 (SCN.) Dated 19/2/2001 This is to inform you that after considering the cause shown by you in/as you have failed to reply to the above mentioned memorandum the Deputy Director of Enforcement is of the opinion the Adjudication proceeding as contemplated in Section 51 of FERA, 1973 read with Section 3 & 4 of section 49 of FEMA, 1999 should be held against you in accordance with the procedure laid shown in Rules of the Adjudication Proceedings & Appeal Rules, 1974 and has accordingly fixed this case for personal hearing before him on 22 Oct. 2003 [22nd OCT. 2003] at 12:30 pm in the office of this Directorate at the above mentioned address. Now, therefore, you are hereby given an opportunity to present yourself either personally or through your lawyer or other authorised representative before the Deputy Director of Enforcement for personal hearing on the aforesaid date, time and place. You may please note that in case you fail to appear before the Adjudication Auth....
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....or function in the company. 2. The undersigned Noticee had not at any stage been involved in any discussions or decisions relating to the import by the said Company and never issued any instructions to any banker or any other functionary of MXL to get any remittance affected out of India for any import. 3. The Notices was neither in charge of nor ever responsible for conduct of the day to day business of MXL." 16. The representation dated 29.10.2003 was, thus, first representation submitted by the appellant in response to adjudication notice and the plea taken by the appellant that he was only a part-time, non-executive Director of erstwhile MXL and was never in charge of nor even responsible for the conduct of business of the Company was the plea taken first time by the appellant and could not have been termed either as afterthought or denied consideration. The High Court committed error in observing that plea taken by the appellant in its reply dated 29.10.2003 was afterthought, since, no such plea was taken in reply to the show cause notice dated 19.02.2001. As noted above the notice dated 19.02.2001 although was addressed to the Company and all its Directors, the reply was....
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....etary Mukesh Dugar which even otherwise does not appear to have been filed either before the Adjudicating Authority or the Appellate Tribunal. No such plea had been taken in any of the earlier communications." 18. The above view of the High Court is neither correct nor based on materials on the record. 19. The adjudicating officer in its order dated 31.03.2004 has noted the reply dated 29.10.2003 on behalf of the appellant. The reply dated 29.10.2003 has been brought on the record of the paper book as Annexure P-4. In paragraph 10(1) of the reply dated 29.10.2003, the affidavit filed by the Company Secretary has been relied which was also enclosed with the reply as Annexure "C". Affidavit of the Company Secretary dated 04.07.2003 which was enclosed with the reply was to the following effect: "AFFIDAVIT I, Mukesh Dugar son of Sh. S.R. Dugar and presently the Company Secretary & Head - Legal of Xerox Modicorp Limited having its registered office at 109, Shivalik Apartments, Sector 3, Noida, Distt. Gautam Budh Nagar, Uttar Pradesh do hereby solemnly affirm and state as follows: 1. That Modi Xerox Limited has since been merged into Xerox Modicorp Limited vide orders dated 10.01.....
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....mission set forth hereinabove (1) That the Notice was a decorative part time non-executive Director and the Board Meetings attended by him have only been in his capacity as a part-time nonexecutive Director and not in any other capacity. The Noticee was never in the employment of the company and never ever had nay executive role or function in the Company. A copy of the Affidavit filed by the noticee with his reply to Show Cause Notice No.T-4/337/DZ/2002 dated 28.05.2002 of the Company Secretary of XMC at the time to its swearing confirming that the Noticee was only a part-time Director of MXL and was never in charge of the day to day business of MXL is enclosed herewith and marked as Annexure - 'C'. This Notice has been never engaged in day to day conduct of the business of MXL. He has never entered into any import agreement. He has never issued any instructions to any person or the bank for causing any remittance abroad and as such he is not responsible for liable at all in any manner. (2) It is respectfully submitted that the documents enclosed with MXL's reply of 04.12.1991, 25.12.1991, 25.12.1991 and 09.07.1993 and XMC's reply dated 26.03.2001 will establish that goods hav....
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....ace and were not responsible for the conduct of the company, hence I drop the charges against S/Sh. Laurence Lyndon Haddon, Stephen Lawrence Tiemey, Bernard Fournier, R.S. Lodha, R.P. Goel, Jan Williams Van Erde, Chaman Lal Turki Dhar, Ramesh C. Vash, S.K. Jain, K.P. Narasimhan, Sunil Mitra, Sundershan Lal, R.K. Mahajan, C.G. Parekh, Kari Kumar and Usha Ranjan Saha." 25. There is no consideration of pleas of the appellant as has been extracted by the adjudicating officer himself as noted above specially in paragraph 10(1), 10(2) and 10(3) of the reply. The adjudicating officer has not even held that the pleas taken by the appellant were untenable. The adjudicating officer, thus, has imposed the penalty without returning a finding that it was the appellant who was liable for contravention of the provisions of Section 8(3), 8(4) and Section 68 of the FERA, 1973. The order of the adjudicating officer, thus, is unsustainable on the above ground also. 26. The Appellate Tribunal has also not considered the above plea of the appellant and by making general observation that management of the Company is to be handled by the Board of Directors, hence, the appellant being Director is held g....
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.... the Negotiable Instruments Act, 1881 which provision is to the following effect: "Section 141. Offences by companies.-(1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this subsection shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in subsection (1), where any offence under this Act has been commi....
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....ompany. It makes every person who. at the time the offence was committed, was incharge of and was responsible to the Company for the conduct of business of the Company, the Company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence." 30. This Court held that the criminal liability arises from being in charge of and responsible for the conduct of the Company at the relevant time. Elaborating the requirement for a person to be made liable under Section 141 this Court laid down following in paragraphs 10 and 12: "10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the Section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words " who, at the time the offence was committed, was in charge of and was responsible to the company for the con....
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....onal Small Industries Corporation Limited vs. Harmeet Singh Paintal and another, (2010) 3 SCC 330 and Pooja Ravinder Devidasani vs. State of Maharashtra and another, (2014) 16 SCC 1. 32. Learned Additional Solicitor General placed reliance on the judgment of this Court reported in N. Rangachari vs. Bharat Sanchar Nigam Ltd., (2007) 5 SCC 108. This Court in Rangachari was again considering the provisions of Section 141 of the Negotiable Instruments Act, 1881. Learned Additional Solicitor General relied on paragraphs 17 to 22. In N. Rangachari this Court has noticed the earlier three-Judge judgment in S.M.S. Pharmaceuticals Ltd.(supra) and clearly held that the said judgment is binding. In paragraph 20 of N. Rangachari, this Court laid down following: "20. In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company Under Section 141 of the N.I. Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company." 33. Thus, what was held in S.M.S. Pharmaceuticals Ltd.(supra) has been reiterated by N.....
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....at if a Director of a Company who was not in-charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable for a criminal offence under the provisions. The liability arises from being incharge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. 13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent No. 1 was in-charge of or was responsible to the accused company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability." 36. In the above case, this Court held that Directo....
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....nce as contained in Section 68 of FERA, 1973. Section 141(1) of Negotiable Instruments Act uses the same expression "every person, who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence". Section 68 of FERA, 1973 as well as Section 141 of the Negotiable Instruments Act deals with the offences by the companies in the same manner. The ratio of the judgments of this Court on Section 141 of Negotiable Instruments Act as noted above are also clearly relevant while interpreting Section 68 of FERA Act. We, thus, hold that for proceeding against a Director of a company for contravention of provisions of FERA, 1973, the necessary ingredient for proceeding shall be that at the time offence was committed, the Director was in charge of and was responsible to the company for the conduct of the business of the company. The liability to be proceeded with for offence under Section 68 of FERA, 1973 depends on the role one plays in the affairs of the company and not on mere designation or status. This Court in S.M.S. Pharmaceuticals Ltd. (supra)....