2012 (8) TMI 414 - HC - Customs

Fiscal Penalty imposed for alleged violation of provisions of Section 11(2) of the Foreign Trade (Development & Regulation) Act, 1992 on nominee directors - failure to fulfill the export obligation under DEPB licenses - Held that - It is relevant to note that neither in the showcause notice it is alleged nor in the orders impugned in the petition any finding is recorded to the effect that the petitioner, a nominee director had aided or abeted in contravening the provisions of the Act. In the absence of any such finding recorded, imposition of penalty on the petitioner nominee director on the ground that the petitioner has violated Section 11(2) of the 1992 Act cannot be sustained - Decided in favor of petitioner

Issues:
1. Violation of provisions of the Foreign Trade (Development & Regulation) Act, 1992 and Foreign Trade Regulation Rules, 1993 by a company and its directors.
2. Imposition of fiscal penalty on the company and its directors for failure to fulfill export obligations under DEPB licenses.
3. Justification of penalty on a nominee director for alleged violations.

Issue 1: Violation of Provisions of the Foreign Trade Act and Rules
The judgment questions whether the Deputy Director of Foreign Trade was justified in holding that a company and its directors, including a nominee director, violated Section 11(2) of the Foreign Trade (Development & Regulation) Act, 1992 along with Rule 13 and 14(1) and (2) of the Foreign Trade Regulation Rules, 1993. The petitioner, a nominee director of ICICI Bank Limited, was alleged to have contravened these provisions, leading to the imposition of a fiscal penalty. The Court noted that there was no finding that the nominee director aided or abetted in contravening the Act, rendering the penalty on the nominee director unsustainable.

Issue 2: Imposition of Fiscal Penalty for Non-Fulfillment of Export Obligations
The case involved the company's failure to fulfill export obligations under DEPB licenses, resulting in the initiation of proceedings against the company and its directors. Fiscal penalties were imposed on the company and its directors based on the alleged contravention of Section 11(2) of the Foreign Trade Act and related Rules. However, the judgment highlighted that there was no indication in the orders that the nominee director had played a role in obtaining licenses, importing raw materials, or ensuring compliance with obligations under the licenses. As such, the imposition of fiscal penalties on the nominee director was deemed unjustified.

Issue 3: Justification of Penalty on Nominee Director
The judgment emphasized that there was no evidence to suggest how the nominee director had violated the specific rules and regulations mentioned. While the nominee director held a position during the relevant period, there was no indication that they were involved in the activities leading to the alleged violations. The Court concluded that without establishing the nominee director's direct involvement or responsibility in the contraventions, the imposition of fiscal penalties on the nominee director could not be upheld. Consequently, the Court ruled that the fiscal penalties imposed on the nominee director were not enforceable.

In summary, the judgment addressed the issues of alleged violations of foreign trade laws by a company and its directors, the imposition of fiscal penalties for non-compliance with export obligations, and the justification of penalties on a nominee director. The Court found that there was insufficient evidence to support penalizing the nominee director for the company's actions, leading to the ruling that the fiscal penalties imposed on the nominee director were untenable.

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