TaxTMI 
TaxTMI 
2020 (8) TMI 44
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....f India issued a letter stating that despite reminder 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 pro....
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....0.2003 of the appellant taking the plea that he was only 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 Appella....
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....nly a part-time, non-executive Director and was never in charge of nor 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 ....
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....EW DELHI -110 003. F.NO.T4.2O/DZ/2001/DD(AV)VM/4571 DATE 8/10/2003 From The Deputy Director of Enforcement To M/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 aut....
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....its employment nor ever had any executive role or function in the said Company. Further the undersigned was never in charge of nor ever responsible for the conduct of the business of the Company MXL nor did the Noticee ever had any executive role 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 b....
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....ent, which is to the following effect: "17. It was only as an afterthought and later on that the petitioner in his subsequent reply dated 29.10.2003 took up a plea that he was only a part time director and relied upon an affidavit dated 4.7.2003 of the Company Secretary 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 Xe....
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.... been extensively quoted by the Adjudicating Authority specially sub-paragraph (1), (2) and (3) which are to the following effect: "10 It is prayed that the proceedings initiated may kindly be dropped on the following amongst other main grounds, which are set out hereinafter without prejudice to one another and are in addition to the facts and submission 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 agree....
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....only) each on S/Sh. Bhupinder Kumar Modi, Umesh Kumar Modi, John Rodger Miligan, James Campbell White and Shailendra Swarup and Rs. 5,00,000/- (Rupees Five Lakhs only) on M/s Modi Xerox Ltd. for contravention of Section 8(3) read with Section 8(4) and Section 68 of FERA, 1973, I also find the other directors were not joined the company at relevant time when the transaction had taken place 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 pro....
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....gainst and punished accordingly. Explanation.-For the purposes of this section- (I) "company" means any body corporate and includes a firm or other association of individuals; and (ii) "director", in relation to a firm, means a partner in the firm." 28. In the Negotiable Instruments Act, 1881 initially there was no provision regarding offences by Companies and by Act 66 of 1988 Section 141 was inserted in 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: ....
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....tion to the incriminating act and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are result of acts of others. Therefore, officers of a Company who are responsible for acts done in the name of the Company are sought to be made personally liable for acts which result in criminal action being taken against the Company. 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 paragra....
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.... been subjected to action. 12. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable." 31. The ratio of the above judgment has been reiterated by this Court in N.K. Wahi vs. Shekhar Singh and others, (2007) 9 SCC 481, National 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 i....
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....e persons who are sought to be made vicariously liable for a criminal offence under Section 141 should be, at the time the offence was committed, was incharge of, and was responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. Only those persons who were in-charge of and responsible for the conduct of the business of the company at the time of commission of an offence will be liable for criminal action. It follows from the fact that 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 comp....
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....ded that all the Directors irrespective of their role and responsibilities shall be deemed to be guilty of contravention, the section could have been worded in different manner. When a person is proceeded with for committing an offence and is to be punished, necessary ingredients of the offence as required by Section 68 should be present. 38. We may notice that Section 141 of the Negotiable Instruments Act, which was inserted in Negotiable Instruments Act by amendment in the year 1988 contains the same conditions for a person to be proceeded with and punished for offence 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 in....
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....action with company is entitled to presume that the Directors of the company are in charge of the affairs of the company. The presumption of a person in the commercial world is a rebuttable presumption and when adjudicating authority proceeds to impose a penalty for a contravention of FERA, 1973, essential ingredients constituting an offence under the FERA read with Section 68 has to be communicated to the person proceeded with to enable him to make effective representation in the matter. 41. Learned Additional Solicitor General also submitted that all the three Courts have held and found contravention proved by the appellant, this Court may not interfere with such conclusion. We have already noticed above that the plea of the appellant that he was part-time, non-executive Director not in charge of the conduct of business of the Company at the relevant time was erroneously discarded by the authorities and the High Court and there is no finding by any of the authorities after considering the material that it was the appellant who was responsible for the conduct of business of the Company at the relevant time. Thus, present is a case where the liability has been fastened on the ap....