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1996 (5) TMI 449
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.... 1988 1. Diamant Carbon & Graphite Products Ltd. (DCGPL) SCN I Section 9(1)(a ) Rs. 2,00,000 SCN II Section 9(1)(a) No penalty; Penalty already imposed in pursuance of SCN I. (1) (2) (3) (4) Section 9(1)(c ) Rs. 2,50,000 2. J.J. Dalai SCN I Section 9(1)(d) Rs. 30,000 (as Director of 1st appellant) SCN II Section 9(1)(a) No penalty; Penalty already imposed in pursuance of SCN I. Section 9(1)(c ) Rs. 30,000 (as Director of the 1 st appellant and constituted attorney of the appellant in Appeal No. 213). Appeal No. 213/88 Diamond Crucible Co. SCN II Section 9(1)(a) No penalty (P.) Ltd. (DCCL) Section 9(1)(c ) Rs. 2,50,000 Appeal No. 267/88 1. J.D. Corporation SCN III Section 16(1) Rs. 1,00,000 2. J.J. Dalai SCN III Section 16(1) r/w 68(1) Rs. 50,000 (as a partner of the first appellant).....
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....submitted that since he had to come from Ahmedabad, fresh hearing in Appeal No. 213 of 1988 need not be held. He had no objection if the final order is pronounced after hearing of the other two appeals, on the basis of his Memorandum of Appeal and the arguments advanced by the appellants in Appeal No. 266 of 1988. He also submitted that the case law filed by him be taken into consideration by the Board while considering his appeal for final disposal. He submitted that since the evidence and the arguments in the other two appeals are similar to those made by him and will be repeated by the counsel in those appeals, it would not be necessary for him to make oral submissions. In the circumstances, it was decided that final order in Appeal No. 213 of 1988 be made on the basis of the record without personal hearing if the other two appeals are heard by a Bench of the Board. 6. The dispensation application in Appeal No. 266 of 1988 was heard and it was decided to dispense with the requirement of pre-deposit. This common order disposes of Appeal Nos. 266, 213 and 267 of 1988. 7. The allegations in SCN I are included in SCN II. Therefore, it will be sufficient to deal with SCN II onl....
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....following manner: (a) an amount equivalent to Rupees 5,00,000 less applicable Indian taxes (which we assume to be 20%) as the first instalment as provided in the agreement between yourselves and DCCP; (b) an amount equivalent to Rupees 4,80,000 less applicable Indian taxes (which we assume to be 20%) as the second instalment as provided in the agreement between yourselves and DCCP; (c) an amount equivalent to Rupees 5,50,000 less applicable Indian taxes (which we assume to be 20%) as provided in the agreement between yourselves and ABC; (d) an amount of DM 60,000 which we are trying to repatriate in reimbursement of expenses incurred by you in providing to us preliminary information in respect of the projects and in visiting India on diverse occasions and otherwise in connection therewith. Should permission for such repatriation be not granted by the Indian authorities, wholly or partially, we shall make payment of the said amount or balance thereof, as the case may be, in some other manner acceptable to you; (e) an amount equivalent to the difference between DM 5,10,000 and the toted of amounts paid under sub-paragraphs (a) to (d) afore....
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....N are as follows : DM 2,500 Balance towards expenses for providing preliminary information in respect of project after payment of DM 57,500 (i.e. DM 60,000 minus DM 57,500 already paid) Para 12(d) of secret letter dated 30-09-1980. DM 67,500 Being the amount towards difference in price as per para 12(e) of secret letter dated 30-09-1980. DM 3,71,000 Being cash payment proposed to be made as per Para 12(f) of secret letter dated 30-09-1980. DM 90,000 Payment of extra commission to be paid as per Para 12(g) of secret letter dated 30-09-1980. DM 5,31,000 11. The allegation of contravention of sections 9(1)(a) and 9(1)(c) has also been made against UJ. Dalai and JJ. Dalai, Directors of the appellant DCGPL and Dr. H.A. Shah and UJ. Dalai, Directors of DCCL and JJ. Dalai also as constituted attorney for Dr. H.A. Shah, in their capacity as persons in charge of and responsible to the respective companies for the conduct of their respective business by invoking the provisions of section 68(1). However, only JJ. Dalai has been found guilty. 12. The allegations made in SCN II are sought to be supported by the evidence of the seized documents, and the....
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....as no payment in terms of this letter had been paid to B&P except the payment officially approved and it is unthinkable that B&P would have signed the two agreements of 20-06-1980 and 29-09-1980 which were for a much lesser amount before the date of the seized letter, which admittedly is of subsequent date. He also submitted that the Department cannot avail of the provisions of section 72 of the Act. He brought to our notice the judgment in appeal of the Court of Sessions in Cr. Appeal No. 74 of 1991 rendered on 25-10-1994 by which the conviction of the appellant on the charge of contravention of sections 9(1)(a) and 9(1)(c) in section 56 of the Act proceedings was quashed. He stated that in those proceedings also, the evidence relied on by the prosecution was the same as that before the learned Adjudicating Officer. Shri Patel submitted that in that judgment, the Court held that presumption of section 72 cannot be attracted. The respondents, on the other hand, submitted that the judgment of the Court of Sessions is not relevant as the standard of proof in criminal proceedings is much more strict than in adjudication proceedings. We have given due consideration to the submissions m....
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....zed letter cannot, in our opinion, be discarded as a mere piece of paper solely for the reasons that it is typed written or not signed or is not dated. The allegation, in substance, is that the said document contains and discloses a secret agreement for payment of amounts over and above those approved by the Government of India for the earlier two agreements. In such a case, the seized letter or any other written material need not and is not likely to be a formal document recognised and enforceable in law. In our opinion, the said letter can be legitimately taken in evidence, as has been done by the learned Adjudicating Officer. The real issue in our opinion is as to what is the true import and purport of this document, what is its evidentiary value and whether it discloses, read alone or with any other evidence, the alleged contravention? 17. The appellant's stand in regard to the seized letter is contained in paras 8-13 of their reply dated 04-12-1985 to SCNII dated 11-07-1984. It is stated that around the time the two agreements were negotiated and executed, talks were going on with B&P to make available to the two companies' full collaboration and benefit of further ....
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....ntees of Rs. 60,000 furnished by the SBI, London, to show prima facie that some additional payment over and above those agreed under the two agreements, was agreed to and acted upon to the extent of bank guarantee. We are, therefore, not inclined to discard this seized letter as being not a relevant piece of evidence. 19. Before examining the findings of contravention it is necessary to keep in mind another aspect of this evidence of the seized letter. For contravention of section 9(1)(a), the letter has been relied on only to show that there was an agreement to pay DM 60,000 but for establishing that in pursuance of this agreement a payment of DM 57,500 was actually made, reliance has been placed not on the seized letter but on the note of This of 17-02-1982 and the statement of J.J. Dalai. Thus, the seized letter is only a collateral evidence to lend additional support to the allegation of payment. On the other hand, for establishing the charge of contravention of section 9(1)(c), reliance has been placed primarily on the said seized letter and corroboration has been sought from the statement of J.J. Dalai and the bank guarantee. 20. The observations hereinbefore made, in o....
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....re its incorporation. 24. The question, therefore, arises whether the evidence discussed herein before establishes the charge of contravention on the part of the appellant-companies. In our opinion, the evidence only discloses that a payment of DM 57,500 against DM 60,000 was made by Mike Desai of Canada to B&P, and nothing more. There is no evidence to show that the said amount was given by DCGPL or DCCL to Mike Desai to pay to B&P. On the other hand, the statement relied on by the learned Adjudicating Officer, JJ. Dalai has categorically stated that he had not paid or arranged any compensation for Mike Desai for this transaction. We, therefore, find force in the argument that the evidence does not establish that the amount of DM 57,500, even if it was a payment towards the amount of DM 60,000, was paid by the appellant-companies. In fact even in the SCNs it is alleged that the appellant arranged the payment through Mike Desai of Canada. The question arises whether in the facts as disclosed by the evidence relied on it can be said that the payment was made by appellant- companies ? 25. It is to be borne in mind that provisions of section 9(1)(a) are penal in nature as they a....
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.... any debt, so that a right (whether actual or contingent) to receive a payment is created in favour of any person resident outside India, except as may be provided in and in accordance with any general or special exemption by the RBI. The object of the provision is to conserve foreign exchange for the country. If a right to receive any payment on the basis of acknowledgement of any debt is created in favour of a nonresident, it is only to be expected that he will enforce that right by obtaining a decree thereby making it necessary for the RBI to release foreign exchange for remittance abroad thereby causing depletion of foreign reserves of the country. In order to constitute a contravention of section 9(1)(c), it is necessary to establish that, (i) there is a debt, (ii) there is an acknowledgement of that debt, and (iii) the acknowledgement of the debt is of the nature that it creates a right in favour of the non-resident to receive the payment of that debt. It is also necessary to establish that there is no general or special exemption by the RBI. We are not concerned with this element as the absence of such exemption is not disputed. 29. Debt i....
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.... the assertion. They have not produced any evidence to show that even later on B&P sought to recover or recovered any of those amounts. He strongly relied on the case of Union of India v. Bata India Ltd. [1992] 62 Taxman 68 (Cal.), in support of his argument. That case squarely supports the appellants as the issue of contravention in that case also hinged on an unsigned agreement. However, assuming for a moment that the unsigned letter is only a copy of the letter argued by J.J. Dalai and handed over to B&P when he was in Germany, (as suggested by Department on the basis of J.J. Dalal's statement), the question arises whether it can be construed as an agreement between the appellant- companies and B&P ? The unsigned letter is addressed to B&P by J.J. Dalai purporting to act as constituted attorney for U.J. Dalai and Dr. H.A. Shah. Both these persons in their statements denied having executed any power of attorney in favour of J.J. Dalai nor the department could show that any such power of attorney existed. No doubt it can be argued that DCGPL had already been incorporated before the unsigned letter was supposed to have been written and J.D. Dalai, being one of its Directors, ha....
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....signed letter evidences an agreement with B&P, it is unenforceable by B&P, being void. In law it is a nullity. In view thereof the agreement cannot have the effect of creating a debt of the amounts mentioned in SCNII or any one or more of those amounts. 34. The unsigned letter also does not purport to show that the amounts mentioned in SCN II had become due and payable by DCGPL and DCCL. The learned Adjudicating Officer seems to have assumed that unsigned letter is an acknowledgement of debt apparently for the fact that the letter mentions about the obligation to pay the amounts specified therein out of which the amounts mentioned in SCN II allegedly remained unpaid. But he ought to have appreciated that section 9(1)(c) speaks about acknowledgement of debt. Therefore, it is necessary to establish that there was a debt in existence and the said letter sought to acknowledge that debt. There is nothing in the impugned order to show as to how the amount of DM 5,31,000 can be considered to be the amount outstanding by way of debt which was sought to be acknowledged in the said letter. In fact even in the SCN, there is no assertion of existence of any debt. The Department seems to ....
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....diency. But their activities have been guided, controlled and executed from the very beginning, even before their actual incorporation and after their incorporation also by Shri JJ. Dalai and Dr. Shah, of whom he was constituted attorney. While entering into these transactions, the shape of things to come was already in the mind and these two legal entities, although in the process of formation at that time, were already in contemplation. And, in such circumstances, these companies will be bound by the acts of Shri JJ. Dalai and will have to suffer the consequences of these acts, if any, also." 37. It has been rightly contended by the appellants that it is not permissible in law to pierce the veil of a corporate entity except in case of fraud, deception, etc. In fact under the scheme of section 68(1) and (2), it is not necessary to go behind the corporate veil as the liability of Directors, employees, etc., of a corporate entity or of a partnership firm has been expressly laid down therein. Moreover, the corporate veil, where permissible, is to be lifted to find out the real perpetrators of the alleged violations acting behind the veil of corporate entity. How could the question....
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....d on facts, the question of invoking section 68(1) against JJ. Dalai does not arise and the penalty imposed on him is liable to be set aside. 41. This takes us to the consideration of Appeal No. 267 of 1988. This appeal is directed against the finding and order made in pursuance of SCN III where under a penalty of Rs. 1 lakh has been imposed on the appellant-firm for contravention of section 16(1) of the Act. In addition, a penalty of Rs. 50,000 has been imposed on JJ. Dalai in his capacity as the partner of the appellant-firm by invoking the provisions of section 68(1). It is seen from the impugned order that the learned Adjudicating Officer has, without stating any reason, found that an amount of DM 29,123.66, being commission payable to the appellant-firm by its principals Backer and Piscantor, was not received by it. On this finding, he held the appellants' guilty of contravention and imposed the penalties hereinbefore stated. 42. It appears from SCN III that the allegations against the appellant are based on a loose sheet of papers (page 5) and JJ. Dalal's statement of 26-02-1982, which was recorded immediately after the search of his premises. The loose sheet nu....