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2015 (2) TMI 24 - HC - FEMAContravention of Sections 18(2) and 18(3) read with Section 68 of the Foreign Exchange Regulation Act, 1973 - Imposition of penalty - whether each of them to whom notices were issued, were during the relevant period in charge of and responsible to the said company for the conduct of the day-to-day business of the company . - Held that - ED has not been able to deny that the SCN was served on FIL and its directors, including the Appellant only at the address of the company and at the time when the Appellant had ceased to be a director. It is not the case of the ED that even after coming to know, when the appeal was filed by the Appellant, that he had ceased to be a director of FIL with effect from 31st October 2001, it offered to serve him a separate SCN at his address. Consequently, it is evident that no SCN was in fact served upon the Appellant at his address as on the date of the SCN, i.e., 28th May 2002. The ED ought to have fairly stated before the AT that since no SCN had been served on the Appellant at his ordinary place of his residence, the AO qua him should in fact be set aside and the ED should be permitted to serve a separate SCN on him. However, even before this Court it was repeatedly asserted that as far as the ED was concerned, it had served the SCN on the Appellant through FIL. Therefore the Court is constrained to observe that the fundamental requirement of the Adjudication Proceedings and Appeal Rules, 1974 ( APAR ) (1974 Rules) and in particular Rule 10 (reproduced herein below) has not been satisfied in the present case. In terms of Rule 10(b), service of notice had to be on either the address of his place of residence or his last known place of residence or the place where he carries on, or last carried on, business or personally works or last worked for gain. There can be no doubt that as on 28th May 2002, i.e., the date of the SCN, it had to be served either at the place of residence of the Appellant or the last known place of his work. As on that date, his address was not the address of FIL. - Even after coming to know that as on the date of the issuance of the SCN, the Appellant was no longer a director of FIL and therefore the notice issued to him at the address of FIL could not obviously be treated to have been served upon him, the ED was not prepared to say that the AO qua him must be set aside on that ground. The AT failed to deal with the central point in the appeal filed by the Appellant. It has also failed to note his submissions in that regard. - The occasion for the Appellant to avail of the defence available to him under Section 68(1) FERA, i.e., to show that he was not in charge of the day-to-day affairs of the company or that the infraction complained of had not occurred with his knowledge or that he had exercised due diligence to avoid such contravention would arise only after he was served with the SCN along with the documents relied upon against him by the ED. In this case, the documents include the statement of Mr. Pradeep Verma. It is not the case of the ED that even on the date of the AO, it had actually served on the Appellant, the documents relied upon in the SCN. Consequently, it is not open to the ED to now contend that even without the relied upon documents being served on the Appellant, he should somehow have made out his case before the AT in support of his defence under the proviso to Section 68 (1) FERA. The impugned AO was in violation of the principles of natural justice, as well as the requirement of Section 51 FEMA read with Rule 10 of the APPR. - impugned AO dated 3rd November 2004 and the impugned order dated 2nd July 2008 of the AT are unsustainable in law and are hereby set aside. - Decided in favour of appellant.
Issues Involved:
1. Validity of the service of Show Cause Notice (SCN) on the Appellant. 2. Liability of the Appellant under Sections 18(2) and 18(3) read with Section 68 of the Foreign Exchange Regulation Act, 1973 (FERA). 3. The Appellant's resignation and its effect on the proceedings. 4. Compliance with Rule 10 of the Adjudication Proceedings and Appeal Rules, 1974 (APAR). Detailed Analysis: 1. Validity of the service of Show Cause Notice (SCN) on the Appellant: The central issue was whether the SCN was properly served on the Appellant. The SCN was issued to the address of the company, Flex Industries Ltd. (FIL), where the Appellant was no longer a director. The court noted that the Appellant had resigned on 31st October 2001, and the SCN was issued on 28th May 2002. The Enforcement Directorate (ED) did not serve the SCN at the Appellant's residence or last known place of work, which is a requirement under Rule 10 of the APAR. The court observed that the ED should have served the SCN at the Appellant's residence, and failure to do so invalidated the service of the SCN. 2. Liability of the Appellant under Sections 18(2) and 18(3) read with Section 68 of FERA: The Adjudicating Officer (AO) held the Appellant liable for contraventions under Sections 18(2) and 18(3) read with Section 68 of FERA, imposing a penalty of Rs. 5 lakhs. The court found that the Appellant was not given an opportunity to defend himself due to the improper service of the SCN. The Appellant argued that he was not in charge of the day-to-day affairs of FIL during the relevant period (1996-1999). The court noted that the Appellant could not avail of his defense under Section 68(1) FERA without being properly served with the SCN and the documents relied upon by the ED. 3. The Appellant's resignation and its effect on the proceedings: The Appellant had resigned from FIL on 31st October 2001, and this was communicated to the Registrar of Companies (ROC) through Form No. 32. The court found that the Appellant's resignation was not considered by the AO, and the proceedings continued against him as if he was still a director. The court emphasized that the Appellant's resignation should have been taken into account, and the ED should have served the SCN at his residence, not the company's address. 4. Compliance with Rule 10 of the Adjudication Proceedings and Appeal Rules, 1974 (APAR): Rule 10 of the APAR mandates that notices should be served at the person's place of residence or last known place of work. The court found that the ED failed to comply with this rule by serving the SCN at the company's address instead of the Appellant's residence. The court highlighted that the ED should have admitted this error and sought to serve a separate SCN at the Appellant's residence, which was not done. Conclusion: The court concluded that the impugned AO dated 3rd November 2004 and the order dated 2nd July 2008 of the Appellate Tribunal for Foreign Exchange (AT) were unsustainable in law due to the improper service of the SCN and the failure to consider the Appellant's resignation. The court set aside both orders and allowed the appeal, emphasizing the violation of natural justice and the requirements of Section 51 FEMA read with Rule 10 of the APAR. The appeal was allowed with no order as to costs.
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