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2012 (8) TMI 253

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..... in-charge for the day-to-day functioning of the Company. As per Section 68(1) the initial burden is on the prosecution which is not discharged here. That extensive efforts were made to trace out the address of the company and various letters were written to the bank, however, it may be noted that the least that was required from the Respondent was to find out from the record of the Registrar of Companies about the address of the company - As serious prejudice is caused to the Appellant after more than 14 years in leading his defence this is not a case of delay on account of the acts of the Appellants but because of a casual approach adopted by the Respondent - in favour of assessee. - Crl. A. Nos. 52,53 & 59 of 2011, Crl. M.A. Nos. 491,493 & 561 (stay) of 2011 - - - Dated:- 6-7-2012 - Ms. Mukta Gupta, J. Sanjeev Anand and Abhash Kumar for the Appellant. A.S. Chadhiok, Saqib, Bhagat Singh, Vidit Gupta, Ms. Hareen Singh and Akshay Patni for the Respondent. JUDGMENT 1. The present appeals are directed against the order dated 7th October, 2010 passed by the Appellate Tribunal for Foreign Exchange under Section 68 of Foreign Exchange Regulation Act (in short FER .....

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..... n is on the prosecution to discharge. Only after the prosecution has discharged its initial burden of proving, then the role of defence comes to disapprove the same. Further, the defence has not to prove its case beyond reasonable doubt but has only to give a probable defence. Section 68 of FERA applies both to criminal as well as adjudicatory proceedings. Merely because a person is a Director, he cannot be held liable. The onus is cast on the prosecution to prove that the Appellant was responsible and in-charge for the day-to-day functioning of the Company. As per Section 68(1) the initial burden is on the prosecution which is not discharged. In a complaint merely recital of the words of the Section is not sufficient and specific allegations are required to be alleged and proved against the person sought to be prosecuted. Reliance in this regard is placed on S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005] 63 SCL 93 (SC) wherein it was held: "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 a .....

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..... This section operates when in a trial it is proved that the offence has been committed with the consent or connivance or is attributable to neglect on the part of any of the holders of these offices in a company. In such a case, such persons are to be held liable. Provision has been made for Directors, Managers, Secretaries and other officers of a company to cover them in cases of their proved involvement. 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. 4. The records having been weeded out, grave prejudice has been caused to the Appellants in leading their defence. The annual report relied upon by the impugned order itself shows that the Appellants had earlier shifted from G-4, Atmaram Tolstoy Marg to G-4, South-Extn.-I, however the notices were sent at the old address. Further after 1993 no efforts were made to serve the Appellants till 2001 when it was held that Appellants had been deem .....

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..... serve Bank of India again sent a letter dated 16th July, 1991 to the Respondent giving name and address of the defaulting Company as M/s. Multitech International Ltd. 8-A, Atmaram house, 1-Tolstoy Marg, New Delhi. Thus, a notice was again sent on the said address on 10th October, 1991. Pursuant to a letter to Canara Bank informing the failure of the Company to submit documentary evidence of import into India and requesting to give the relative Bills of Entries and furnishing the address of the proprietors/ Directors, a letter was received on 16th December, 1991 furnishing the address of M/s. Multitech Industrial Ltd. as 217, Hans Bhawan, Bahadurshah Zafar Marg, New Delhi. In this regard it may be noted that the Canara Bank instead of giving the address of M/s. Multitech International Ltd. gave address of M/s. Multitech Industrial Ltd. On a letter sent reply was received from M/s. Multitech Filteration Engineers Pvt. Ltd. declaring that they had not imported any electronic component in October, 1995 for such a value. A fresh letter was sent to the Manager, Canara Bank on 9th December, 1992 asking him to furnish the names and address of Directors of Multitech Industrial Ltd. and the .....

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..... Singh Bhandari and Kamlesh Gagnani. However, on the basis of audited balance sheet of the Company ending March, 1996 the last known address was informed as 1101 Arunachal Building, 19 Barakhamba Road, New Delhi. 7. Pursuant to summons dated 24th May, 2001 Shri S.N. Mittal, Advocate legal consultant appeared before the officer who informed that he was a legal adviser with Dalmia Magnetic Corporation which was the concern of Dalmia Cement (Bharat) Ltd. He stated that he did not handle the legal matters of M/s. Multitech International Ltd and that Multitech International Ltd. was authorized to functioning from the same building in terms of lease-deed with Dalmia Cement (Bharat) Ltd. as perhaps sub-lesser at G-4, NDHC Part-I. He also informed the addresses of Appellant Parag Dalmia, however when communication was sent on that address it was informed that Mr. Parag Dalmia has left the house and had shifted to Vasant Kunj. On a summon being issued under Section 40 of FERA, Mr. Parag Dalmia sent a reply on 6th August, 2001 stating that the Company Multitech International Ltd. was sold to Techfin Consultants Ltd. sometime in September 1992. Prior to this, sometime in 1990 both movable .....

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..... that the Appellants were responsible and in-charge of the day-to-day affairs of the company. ( iii ) Whether there is any evidence on record to show that the alleged contravention of the provisions of FERA, 1973 took place with consent or connivance or was attributable to any neglect on the part of the Appellants, and ( iv ) Whether the provisions of Section 8 sub-Section (3) (4) of FERA were attracted in the present case as admittedly no foreign exchange was acquired by the Company and the same was paid only by a bank (authorized dealer) under bank-to-bank transaction under a Letter of Credit (LOC). 9. This Court need not delve into issue No.(iv) as these appeals can be decided on issue Nos. (i) to (iii). Dealing with issue Nos. (ii) and (iii), it is to be noted that as regards Appellants Jaihari Dalmia and H.S. Rustagi, the impugned order does not even state that these Appellants are responsible for the day-to-day working of the company. The relevant portion of the order passed by the Special Director of Enforcement, Enforcement Directorate, Government of India, New Delhi reads as under:- "7.18 Shri J.H. Dalmia, Noticee no.11 Shri H.S. Rustogi - Noticee no.13 S .....

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..... Neeta Bhalla and another [2004] 7 SCC 15 binding on us, has postulated that a Director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of his business in the context of Section 141 of the Act. Bound as we are by that decision, no further discussion on this aspect appears to be warranted." 11. In Neeta Bhalla's case ( supra ) a three Judge Bench of the Hon'ble Supreme Court while dealing with provisions of Section 141 and 138 of the Negotiable Instruments Act, 1881, which are pari meteria of Section 68 of FERA held as under:- "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 conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence, etc." What is requi .....

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..... any to cover them in cases of their proved involvement." 12. In National Small Industries Corpn. Ltd. v . Harmeet Singh Paintal [2010] 98 SCL 407 (SC) their Lordships held:- "10. 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 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. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfilment of the requirements under Sec .....

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..... e Appellant Parag Dalmia thereby showing that he was looking after day to day affairs of the company thus prima facie the prosecution has discharged the burden in case of Appellant Parag Dalmia that he was looking after day to day affairs of the company and was responsible and incharge thereof. However, the issue, which arises for consideration in Crl.A. 52/2011 filed by Parag Dalmia is that whether the delay in issuing notice to Appellant Parag Dalmia has resulted in prejudice to him so that he could lead his evidence and thus, the impugned order is liable to be set aside on this count. The contention of learned counsel for Appellant Parag Dalmia is that notice to the company is not notice to the Appellant especially when the company had been wound up. Though the offence was allegedly committed on 28th April, 1987, Appellant Parag Dalmia was sent summons for the first time to appear on 16th July, 2001. Till that date no summons were ever issued to him. This belated issuance of summons after 14 years has caused serious prejudice to him as then nothing was available with him to show that he had no role to play in the alleged offence. He neither has the bills of entry nor the postal .....

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..... to exercise the power within a reasonable period. What would be reasonable period, would depend upon the facts of each case. Whenever a question regarding the inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case notice of demand for recovery was made within reasonable period. No hard and fast rules can be laid down in this regard as the determination of the question will depend upon the facts of each case." 17. In Bhagwandas S.Tolani v. B.C. Aggarwal [1983] 12 D.L.T. 44 (Bom.) it was held:- "7. There is also one more aspect of the matter. In the reply, the firm has pointed out that almost all the relevant records have been destroyed and the persons who was in charge is no longer in their employment. In my view, even without considering the case that adjudication proceedings had in fact been held, I am of the opinion that this is otherwise also a stale matter which cannot be allowed to be reopened, since to allow it to be reopened, would cause serious detriment and preju .....

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