2019 (10) TMI 1210 - ATFEMA

Offence under FERA - fraud on the banking system - mens rea is an essential ingredient as the FERA proceedings - As alleged officers responsible for conduct of the company were ‘negligent' - non specified SCN - HELD THAT:- Show Cause Notice must necessarily establish that the concerned officer was incharge of, and responsible for conduct of the company and further, spell out the offence committed by such officer. Only certain junior officers have been namedin the SCNs who can under no circumstances be said to be incharge and responsible for the bank or for conduct of its business. Further, onus to prove that a person was responsible for conduct of business of company is on the Department, which it has failed to discharge.

In the impugned Orders Mr. Rajgopalan Ramkumar, Mr. Sunil G. Sawant, Mr. R.B. Dhage, Mr. Allwyn Roche, Mr. P.S. Khatu, Mr. T.R. Subramaniam and Mr. Paul Pereira have been held liable under Section 68(2) of FERA for allegedly contravening the provisions of Section 8(1), 9(1)(a), 9(1)(e) and 6(4) read with Section 49, on the ground that the alleged contraventions took place due to their alleged “negligence” even when section 68(2) was not invoked in the SCNs.

The impugned Order has been passed under Section 68(2) of FERA returning a finding that the above-mentioned officers were ‘negligent‘ and have found them guilty under Section 68(2) of FERA. Such a finding, in the absence of any allegation under Section 68(2) in the SCNs is unsustainable in law. It depends upon case to case if the contravention was made by the defaulter with the guilty intention or not. The same is the main test. The guilty intention is missing in the present case on behalf of all the appellants if the statements are read.

SCN must be specific and must indicate the precise scope of notice and points on which the officer concerned is expected to give a reply. It is submitted that when the foundation of the charge is not made out in the SCN, then the impugned Order passed under Section 68(2) cannot be sustained.

It is not sufficient merely to allege that a person is incharge and responsible and there has to be specific allegation of how one was in charge and responsible to the business of the company, relevant to the allegations in question. As mentioned above, apart from bald statements, there are no specific allegation against the Officers

It is a well settled principle of law that merely because penalty may be imposed, unless there is a deliberate defiance of law or the party is guilty of contumacious conduct or dishonest conduct or has acted in connections.

Adjudicating Officer has wrongly given its finding that the above-mentioned officers were ‘negligent‘ and have found them guilty under Section 68(2) of FERA. Such a finding, in the absence of any allegation under Section 68(2) in the SCNs is unsustainable in law. It is well settled law that an SCN must be specific and must indicate the precise scope of notice and points on which the officer concerned is expected to give a reply. When the foundation of the charge is not made out in the SCN, then the impugned Order passed under Section 68(2) cannot be sustained It is submitted that the finding of the Adjudicating Officer holding the above-mentioned officers liable under Section 68(2) is beyond the SCNs and ought to be set aside on this ground alone. The finding therefore is not correct the said officers were “grossly negligent”.

Power of RBI to punish an Authorised dealer was included in FERA only in the year 1993 whereas these contraventions were taken place in the year 1991.

In the entire show cause notice, there is no material to suggest even remotely that the Noticee allowed the debit to the BFEA Bank Account with an intention to contravene the provisions of the act or the Manual as alleged. The Bank Official who processed the transaction for debit to the account of BFEA merely carried out the instructions of the constituent viz. BFEA as reflected in the cheque issued by and drawn on its account with the Noticee Bank. These instruments were received in the ordinary course of clearance of cheque and in the normal routine course of its banking business, the Officials debited the account of BFEA. There was nothing on the face of the instruments to even remotely suggest that the cheque was being credited into an account of a non-resident. The BFEA being a reputed State Bank of Russia, the Bank Officials had no reason to doubt that the State Bank of the Soviet Union like BFEA would issue its own Banker‘s cheques in an attempt to contravene the provisions of the Act or the Manual. The Bank Officials acted in good faith and the element of mens rea required for a charge of abetment is completely lacking. It is submitted that no penalty could be imposed in respect of the said charge.

No material is found to establish that the banks and its official are involved in any conspiracy directly or indirectly, intentionally or deliberately for the said lapse. No doubt it is serious matter and it should not have happened. It did happen 1991 when communication and technology was not so equipped. Even staff or banks officials may not be experts at that point of time. From the conduct of the bank and pleading of all the appellants, it appears that they are feeling their mistakes.

Case of the appellants are that being a bank it was only for RBI to impose the penalty if any thought alternative submissions are also made. The money in question has also brought back by the bank before issuance of show cause noticed. Country has not lost any revenue. After 1991 the bank has conducted thousand of transactions without any default. RBI has not cancelled its licence of the appelalnt for foreign exchange.

Entire penalty amount has been deposited by the Bank. It appears that after realising lapse on their part, in order to show their bona-fide, the statement was made during hearings of appeals that without prejudice, the said penalty amount shall not be pressed by the appellants for refund. The same may be deposited with the Prime Minister Relief Fund, if so advised by the respondent.