TaxTMI 
TaxTMI 
VICARIOUS LIABILITY OF FORMER OFFICERS OF THE COMPANY UNDER THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999
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....ICARIOUS LIABILITY OF FORMER OFFICERS OF THE COMPANY UNDER THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999<br>By: - DR.MARIAPPAN GOVINDARAJAN<br>FEMA - Foreign Exchange Management<br>Dated:- 2-9-2026<br>In Sh. Prabhakar Pal Versus The Assistant Director, Directorate of Enforcement, Kolkata - 2026 (8) TMI 106 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI, certain information was received from Customs Department to Directorate of Enforcement vide Export Outstanding Statement ('XOS' for short) on 31.12.2010. In this information it was stated that West Bengal Essential Commodities Supply Corporation Limited ('WBECSCL' for short) effected shipments of Iron Ore, Iron & Steel and Cotton raw/waste abroad during the period 2004-2005, for which the export d....
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....ocuments were negotiated through Bank of Maharashtra, Canara Bank, Central Bank of India, Union Bank of India, Syndicate Bank & Oriental Bank of Commerce, and failed to realize the export proceeds. The above said banks were issued notices with directions to give the details of the said export bills, and information as to whether any extension of time was granted, certified copies of the FIRCs/BRCs, and whether any proceeds of exports were realized. Enquiries were also made by using directive dated 14.09.2011 under FEMA, to the exporter. WBECSCL was also inquired and directed to give the details. Some of the above said banks stated that all of the export bills reflected in the XOS are still outstanding and no extension of time was granted....
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..... Other banks stated that the matter being very old, the relevant export documents could not be located by them. It was found that WBECSCL effected shipments of goods during the period 2004-2006 for the total invoice value of USD 82620794.05 against which a total amount of USD 14770567.21 is outstanding. WBECSCL has not taken any extension of time from the competent authorities in respect of the outstanding export bills. It was also found that, no reasonable/effective steps have been taken by WBECSCL to get the outstanding payments realized from the buyers. The respondent, the Enforcement Directorate, issued a show cause notice to WBECSCL on 02.04.2018 and to its Ex-Managing Directors, Ex-Manager (Export) and the appellant wh....
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....o was the ex-Financial Advisor and Chief Accounts Officer. After hearing the appellants and other parties, it was held that the exporter, WBECSCL has contravened the provisions of section 7, 8 of Foreign Exchange Management Act, 1999 ('FEMA' for short) read with regulations 8, 9 & 13 of FEMA (Export of Goods and Services) Regulation, 2000. It was also held that the ex-officers of the company were responsible for the conduct of the business during the relevant period also have contravened the provisions of FEMA, 1999 read with regulations as aforesaid in terms of section 42 of the FEMA, 1999. In view of the above contravention a penalty of Rs.4 lakhs. Being aggrieved against the said order the appellant filed the present appeal before ....
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....the Tribunal. The appellant submitted the following before the Appellate Tribunal- • As the FA & CAO (Finance & Accounts Head of WBECSC) at the relevant time, the appellant cannot be held liable under Sections 7, 8 and 42 of FEMA, 1999 and Regulations 8, 9, and 13 of FEMA Regulations, 2000 for alleged non-realization of export proceeds. • He was not part of Export Division, nor responsible for conduct of export business. • He had no role in selection of buyers, export contracts, shipment, recovery of export proceeds. • He had no control over export operations, no authority to enforce recovery. • The impugned order does not identify any specific obligation or failure on part....
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.... of the Appellant. • He has no liability arises under section 42 it requires consent, or connivance, or neglect. None of these was present. • The due diligence was duly exercised by the him. • He recorded multiple cautionary notes in official files suggesting many dos and don'ts including the required 100% Bank Guarantee against procurement or advance ship freight. • The role of the appellant is limited in export. • The burden of proof was not discharged by the Department. • The Department must prove that the individual was in day-to-day control of business. No such proof existed in the present case. • There is no evidence of cons....
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....ent, connivance or neglect. In view of the above, the appellant prayed for setting aside the impugned order. The respondent Department submitted the following before the Appellate Tribunal- • WBECSCL failed to realize balance export proceeds equivalent to Rs 48.40/- crores in the year 2004-2005, for which, the company as well as its Managing Director, Financial Advisor and the appellant were held responsible for not taking the reasonable steps which could realize the said export proceeds. • The appellant has never applied for extension of time limit to the Reserve Bank of India for realization of balance export proceeds. • The appellant did not discharge this statutory duty as an expo....
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....rter. • The designation held by the appellant itself shows that the appellant was holding an important position related to the export and its recovery thereafter. • As Financial Officer and Chief Accounts Officer of the company, the appellant was also responsible for the conduct of export business of the company. • Though he was reporting to the Managing Director and getting approvals for his steps related to export realization, this fact alone cannot absolve him from his liability under the section 42 of FEMA, 1999. • There are a number of evidences, including the statement given by Managing Director and Export Manager, revealing that the appellant was responsible for export b....
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....usiness and, therefore, it was his legal duty to take all reasonable steps which were necessary for realization of balance export proceeds, but the appellant failed to do so. • In regard to the contentions of the appellant that he was not made an accused in the chargesheet filed by the West Bengal Police in connection with FIR, does not have any bearing on the ongoing proceedings of appeal before this Tribunal. In view of the above the Department prayed for the dismissal of the appeal. The Appellate Tribunal heard the submissions of both the parties. The Appellate Tribunal observed that under FEMA, where the contravention is committed by the company, vicarious liability would fasten itself on any person who was in-charge ....
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....and was responsible to the company for the conduct of the business of the company. The person "in charge" must mean the person who is in control of the day-to-day business of the company. A distinction has been drawn by courts between the directors in charge of day-to-day affairs of the company's business and other directors who are not. In the absence of any material to prove that the person was 'in charge' and was responsible to the company for the conduct of its business, the action under Section 42(1) would be void ab initio. The question that arose for the determination of the Appellate Tribunal in this appeal is as to whether or not the appellant was responsible to the company for the conduct of its export business at the rel....
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....evant time. The Appellate Tribunal observed that the appellant placed some facts on record to show that there was a separate 'Export Division' and the export business was totally conducted by them under the overall control of the Managing Director. The then Managing Director had specifically reposed faith in the appellant and assigned to him the responsibility to "sign on all export related documents submitted or to be submitted" to the bank "for carrying on our export transactions". Further, the appellant will be signing both export documents, import documents and all papers relating to operation of bank accounts maintained in your bank. The Appellate Tribunal was of the view that the appellant cannot altogether disown responsi....
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....bility for the contravention of law by way of non-realization of export proceeds. Penalties are imposable even for technical or procedural non-compliances and do not require the existence of any particular mental state or 'mens rea'. The Appellate Tribunal reduced the penalty to Rs.75,000/- to meet the ends of the Justice. The impugned order is, thus, modified. =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....