2022 (6) TMI 724 - HC - Customs

Levy of penalty on the Director of Company - import of goods under advance licence scheme - non-fulfillment of export obligation - petitioner has not been served any show cause notice dated 26th April, 2002 nor given a notice of personal hearing before passing of the adjudication order - violation of principles of natural justice - HELD THAT - To the averment in the petition in paragraph no.22 that petitioner was neither served with a show cause notice dated 26th April, 2002 nor petitioner was given any notice of personal hearing before passing the adjudication order dated 5th February, 2008 it has not been denied in the affidavit in reply. Petitioner s averment in paragraph no.22 that demand notice dated 7th August, 2001 and refusal order dated 3rd October, 2001 referred to in the adjudication order dated 5 th February, 2008 was not served on petitioner has also not been denied in the affidavit in reply. Therefore, on this ground alone the adjudication order should go. When we read the adjudication order dated 5th February, 2008, the entire order proceeds on the basis that obligations to comply with the provisions of FTDR Act was that of the company, the notices were issued to the company and even penalty has been imposed on the company. hough penalty has been imposed on the company because company has defaulted in the export obligation imposed on the licence, in the adjudication order, Respondent No.3 has gone ahead and stated that the noticee firm and its Directors are hereby directed to pay above penalty amount and produce the requisite evidence to his office. There is no discussion at all in the order as to how the Directors of the company become personally liable to pay penalty amount. The adjudication order also is fallacious because the entire order proceeds on the basis that show cause notice has been given to the company, personal hearing has been given to the company, penalty has been imposed on the company but penalty is attempted to be recovered from the Director without any basis being laid in the adjudication order. Therefore, the adjudication order dated 5th February, 2008 is also quashed and set aside to the extent of the directions upon petitioner to pay the penalty amount. Petition disposed off.

Summary

Issues:
Challenge to legality and validity of order dismissing appeal and upholding penalty imposition on the petitioner.

Analysis:
1. The petitioner challenged the legality and validity of an order dated 9th April, 2010/13th April, 2010, where the appeal filed by the petitioner was dismissed, and an earlier order dated 5th February, 2008, imposing a penalty on the petitioner was upheld. The High Court issued a rule on 16th August, 2010, and granted ad-interim relief to the petitioner. The impugned order directed recovery of a penalty from the petitioner as he was the Director of the company at the relevant time.

2. The company in question had obtained an advance license for import with an export obligation. The petitioner was the Managing Director of the company during a specific period. The penalty was imposed under the Foreign Trade (Development and Regulation) Act, 1992, based on a show cause notice issued to the company. However, the petitioner claimed he was not served with any show cause notice or given a notice of personal hearing before the penalty was imposed.

3. The High Court noted that the petitioner's claims of not being served with the necessary notices were not denied in the affidavit in reply. The adjudication order proceeded on the basis that the obligations were on the company, and there was no mention of any basis for the Directors to be personally liable for the penalty imposed on the company.

4. The Court found that there was no provision in the Act permitting the recovery of a penalty from the Directors personally. The impugned order did not address the lack of provisions for imposing liability on Directors for the company's liabilities. Therefore, the High Court set aside the order dated 13th April, 2010, and quashed the adjudication order dated 5th February, 2008, to the extent it directed the petitioner to pay the penalty amount.

5. The Court decided not to remand the matter back for de novo consideration as the adjudication order was also flawed, as it attempted to recover the penalty from the Director without any legal basis. The petition was accordingly disposed of with no order as to costs.