2016 (7) TMI 1341 - AT - FEMA

Contravention of provision of Section 8 of FEMA, 1999 r/w Regulations 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 - failure to prove the service of either SCN or notice for personal hearing or the service of impugned order upon the appellant - Held that - We are of the view that the respondent has failed to prove the service of either SCN or notice for personal hearing or the service of impugned order upon the appellant. The appellant has taken a specific plea that he had resigned much prior to initiation of the Adjudication Proceedings and was non-executive director and was not involved in any activity relating to export or day to day affairs of the company and had been made non-executive director for the Indore project only for saving expenditure and convenience in seeking clearance from various departments. It is established that the services of the appellant were lent to the company M/s. Sashak Noble Metals Ltd. by its employee Sahara Industrial Services Pvt. Ltd. The ex parte order is non-speaking without reasons and violative of the principles of natural justice and the liability has been fastened arbitrarily against the appellant, who appears to have no concern with the business activities of the company relating to disputed transactions and was looking after the Indore project only. No evidence to prove that the appellant was in any way associated with the incharge Managing Director or Director for exports or his role is available and no such allegation specifically has been imputed. The Adjudication Order is improper, unjust and based on surmises and is not sustainable and is liable to be set aside. The appeal has merits and deserves to be allowed. The appeal is allowed and the impugned adjudication order is set aside. The amount of pre-deposit if any shall be refunded by the respondent after the expiry of period of limitation for filing appeal. No order as to costs.

Summary

Issues Involved:
1. Non-realization of export proceeds.
2. Service of Show Cause Notice (SCN) and adjudication order.
3. Liability of non-executive director.
4. Principles of natural justice and right to be heard.

Issue-wise Detailed Analysis:

1. Non-realization of Export Proceeds:
The company, M/s. Sashak Noble Metals Ltd., failed to realize export proceeds within the stipulated period, violating Section 8 of FEMA, 1999, and Regulations 9 and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The total outstanding amount was 5117000 USD, equivalent to ?23,02,65,000. The Adjudicating Authority found the company and its directors guilty of these contraventions and imposed penalties.

2. Service of SCN and Adjudication Order:
The appellant contended that he was not served with the SCN or the adjudication order. He only became aware of the proceedings when his brother visited the Enforcement Directorate in connection with another matter. The Tribunal found that there was no clear evidence that the SCN or the adjudication order was served on the appellant. The original order was supplied to the appellant in 2010, indicating that it was not communicated to him earlier.

3. Liability of Non-executive Director:
The appellant argued that he was a non-executive independent director appointed only for the Indore project and had no involvement in the company’s export activities. The Tribunal noted that the appellant was primarily an employee of Sahara Industrial Services Pvt. Ltd. and was deputed to set up a gold refinery project at Indore. The appellant had resigned from the company before the adjudication proceedings began. The Tribunal emphasized that merely being a director does not make one liable for the company’s actions unless it is proven that the director was in charge of and responsible for the conduct of the business.

4. Principles of Natural Justice and Right to be Heard:
The Tribunal highlighted the importance of adhering to the principles of natural justice, particularly the right to be heard (audi alteram partem). The appellant was not given an opportunity to defend himself as he was not served with the SCN or the adjudication order. The Tribunal found the adjudication order to be ex parte, non-speaking, and violative of the principles of natural justice.

Conclusion:
The Tribunal concluded that the respondent failed to prove the service of the SCN and adjudication order on the appellant. The appellant was not involved in the disputed transactions and was only a non-executive director for the Indore project. The adjudication order was based on inferences without corroborative evidence and was therefore set aside. The appeal was allowed, and the pre-deposit amount, if any, was ordered to be refunded.