2024 (8) TMI 663 - AT - FEMA

Offence under FEMA - Involvement of the Respondents in the conduct of the business of the company - liability of director in a company for contravention of provisions - HELD THAT - We observe that the liability u/s 42(1) depends on the role one plays in the affairs of the company, and not on mere designation. It cannot be that all Directors irrespective of their role and responsibilities shall be deemed to be guilty of the contravention. From the record, it is obvious that Shri S.R. Subba was the main person in-charge of the affairs of the company and was responsible to the company for the conduct of its business. Moreover, Shri S.R. Subba has clearly stated before the Enforcement Directorate, that he was looking after the affairs of the company including its day-to-day activities during the relevant period and the respondents were not actively involved in the affairs of the company. Shri S.R. Subba vide his letter dated 09.10.2006 addressed to the Ld. Adjudicatory Authority, reiterated that he was looking after the affairs of the Company including its day to day activities during the relevant period. The other noticees were not actively involved in the affairs of the company. Also obvious from the record that Shri M.K. Subba, the retired Director, was directly involved in the opening and maintenance of the accounts in the foreign banks, and fully responsible for the conduct of the Company. Respondents were Directors they were not actively involved in the policy and decision making activities of the Company. The respondents were neither in-charge of the affairs of the company nor responsible for its conduct. There are no statements recorded by the Enforcement Directorate with respect to the Respondents as to their role in the company. Revisionists have failed to produce any evidence, which shows as to how and in what manner the Respondents were responsible for the conduct of the business of the Company. In the Revision Petition as well as in the pleadings nothing has been put forth as to lead us to draw conclusions otherwise. Thus, no merit in the Revision Petition and do not interfere with the impugned order.

Summary

Issues:
1. Interpretation of Section 42(1) of FEMA regarding liability of individuals in a company for contravention of provisions.
2. Examination of the role and responsibility of Directors in the conduct of business for determining liability under FEMA.
3. Assessment of evidence and arguments presented to establish the guilt of the Respondents.
4. Consideration of the legal precedent and judgments related to the liability of Directors in company offenses.

Analysis:

1. The judgment dealt with the interpretation of Section 42(1) of FEMA, which holds individuals in a company liable for contraventions. The Appellate Tribunal analyzed the role of the Respondents in the company and the specific provisions they were charged with under FEMA and related regulations.

2. The Tribunal considered the arguments presented by the counsel for the Revisionists, emphasizing that the liability under Section 42(1) depends on the role played by individuals in the affairs of the company, not merely on their designation. The Tribunal referred to the judgment in Shailendra Swarup versus Deputy Director, Enforcement Directorate to highlight the importance of being in charge and responsible for the conduct of the company's business.

3. Despite the absence of representation from the Respondents, the Tribunal reviewed the documentary evidence available on record. It was argued that the Adjudicatory Authority failed to appreciate the involvement of the Respondents in the business of the company, leading to the imposition of penalties on M/s. Subba Microsystems Ltd. and its Chairman and a retired Director.

4. The Tribunal examined the statements and submissions made by the Chairman and the retired Director of the company, highlighting their active involvement in the affairs and day-to-day activities of the company. However, it was observed that the other Directors were not actively engaged in the company's operations, decision-making, or policy formulation, which influenced the Tribunal's decision.

5. Ultimately, the Tribunal concluded that the Respondents, although Directors of the company, were not actively involved in its affairs to be deemed guilty of the contraventions under FEMA. The lack of evidence or statements indicating their responsibility for the conduct of the business led to the dismissal of the Revision Petition, upholding the impugned order and disposing of the case accordingly.