2016 (7) TMI 1701 - AT - FEMA

Offence u/s 8 of FEMA, 1999 and related regulations - Investigation was initiated on the basis of information received from RBI regarding non-realization of export bills and its sister companies, which were negotiated through different banks - Liability of directors under Section 42 of FEMA, 1999. HELD THAT - Since there is no allegation at all that the appellant was responsible in any way with the management or business activities or the exports relating to disputed transactions in any way, the finding of Adjudicating Authority wherein he has fastened the liability upon all the directors, presuming their involvement merely on the basis that they were directors of the company at the relevant period, as per documents furnished by the company as well as the banks concerned, is erroneous. Further the same Adjudicating Authority has absolved co-noticee R. K.T. Das in the Order challenged through Appeal on his plea that he was only a non-executive director and was not involved in the day to day working of the company and had not attended any board meeting of the company also. Ex parte proceedings and Denial of principles of natural justice - Similar is the plea of the Appellant, but since the proceedings were held exparte there was no occasion for him to take such plea. It may be pointed that by merely issuing notices to a party does not mean that notice was duly served upon that party. Sufficient service of notice as per rules is necessary before the Adjudicating Authority can decide to proceed exparte against such persons. In the instant appeals the case of the Appellant is that he had left his service during the period when the extension granted by the RBI to the company for realization was continuing, no service upon him of the SCN or call notice for personal hearing was effected, has substance because had the appellant knowledge of the proceedings he could have appeared before the Adjudicating Authority and taken the same case/plea upon which proceedings were dropped against the Appellant in the matter of M/s. Geekay Exim (India) Ltd. The impugned Adjudication Orders, in our view are not in consonance of law and smacks of arbitrariness on the part of the Adjudicating Authority, resulting in gross violation of principles of natural justice. Therefore, in view of the above, we find merit of the appeals, which deserve to be allowed.

Issues Involved:

1. Non-realization of export proceeds by M/s. Aviquipo of India Ltd. and M/s. Tirumala Impex Pvt. Ltd.
2. Liability of directors under Section 42 of FEMA, 1999.
3. Alleged contravention of Section 8 of FEMA, 1999 and related regulations.
4. Ex parte proceedings and principles of natural justice.
5. Validity of penalties imposed on the companies and directors.

Issue-wise Detailed Analysis:

1. Non-realization of Export Proceeds:
The appeals relate to the failure of M/s. Aviquipo of India Ltd. and M/s. Tirumala Impex Pvt. Ltd. to realize export proceeds within the stipulated period, which was alleged to be in contravention of Section 8 of the Foreign Exchange Management Act, 1999, read with Regulation 9 and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The companies were charged with not taking necessary steps for the realization and repatriation of export proceeds, leading to adjudication proceedings against them.

2. Liability of Directors under Section 42 of FEMA, 1999:
The directors, including the appellant, were charged under Section 42 of FEMA, 1999, which extends liability to persons in charge of and responsible for the conduct of the business of the company at the time of contravention. The adjudicating authority held most directors liable, except those who could demonstrate non-involvement in day-to-day operations, such as R.K.T. Das and Bhupesh Patel, who were exonerated due to their non-executive roles.

3. Alleged Contravention of Section 8 of FEMA, 1999 and Related Regulations:
The adjudicating authority found both companies guilty of contravening Section 8 of FEMA and related regulations due to their failure to realize export proceeds. Penalties were imposed on the companies and the directors, including the appellant, who contested the charges by arguing lack of involvement in the export activities and lack of responsibility for the company's business conduct.

4. Ex Parte Proceedings and Principles of Natural Justice:
The appellant argued that the proceedings were held ex parte without proper service of show-cause notices or personal hearing notices, which violated principles of natural justice. The appellant claimed lack of knowledge of the proceedings, as notices were allegedly sent to incorrect addresses and not served personally. The tribunal acknowledged these arguments, noting the absence of evidence showing the appellant was in charge of the company's business activities.

5. Validity of Penalties Imposed:
The tribunal found the adjudicating authority's decision to impose penalties on the appellant and other directors to be erroneous, as there was no evidence or specific allegations that the appellant was responsible for the conduct of the company's business. The tribunal emphasized that merely being a director does not automatically entail liability unless involvement in the contravening activities is proven. The tribunal set aside the penalties, highlighting the lack of due process and the failure to adhere to principles of natural justice.

Conclusion:
The tribunal allowed the appeals, setting aside the adjudication orders and penalties against the appellant and other directors. It emphasized the need for sufficient service of notices and the importance of establishing direct involvement in contravening activities to impose liability. The tribunal's decision underscores the significance of adhering to principles of natural justice and ensuring fair proceedings.

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