2016 (7) TMI 860 - HC - Customs

Levy of penalty on the directors when there is no charge in the show cause notice or imposing the penalty. - Violation of conditions of Export Promotion Capital Goods Scheme EPCGS - export obligation could not be fulfilled - Held that - The show cause notice does not appear to have been addressed to the petitioners who are the directors nor does it lay down any proposal for imposing of the penalty. Held that - the show cause notice dated 09.09.2003 though titled to be a show cause notice under Section 14 and 11(2) of the FTDR does not fulfill the requirement of Section 11(2) in as much as it concerns the petitioner directors. Firstly as seen from the show cause notice the same is addressed to the noticee firm. Secondly the show cause notice is not directed towards the petitioner directors. Thirdly the proposed action under the show cause notice is for cancel/suspension the importer/exporter code and no penalty either on the company or the Directors is proposed. Fourthly no role or act is specified in the show cause notice by which the directors could be said to have abetted or attempted to make any export or import in contravention of any provisions of the FTDR or rules and order made thereunder or the Foreign Trade Policy. Fifthly so far as the petitioners are concerned no opportunity of hearing is given therefore there is clear violation of principle of natural justice. By merely providing the notice that the contents be brought to the notice of the Directors who may submit their response would not be sufficient notice to them. In the notice no allegations were made against the Directors. In this view of the matter the show cause notice is no show cause notice in the eye of law and therefore the consequential orders are also required to be nullified. - Penalty set aside - Decided in favor of petitioner.

Summary

Issues Involved:
1. Validity of the show cause notice.
2. Imposition of penalty on directors.
3. Violation of principles of natural justice.

Detailed Analysis:

1. Validity of the Show Cause Notice:
The petitioners challenged the show cause notice dated 09.09.2003, arguing that it did not propose the imposition of a penalty on the directors. The court noted that the show cause notice was addressed to the noticee firm and not to the directors. The notice only mentioned the potential cancellation/suspension of the importer/exporter code and did not specify any penalty against the directors. The court observed that the notice failed to fulfill the requirements under Section 11(2) of the Foreign Trade Development and Regulation Act (FTDR Act), as it did not provide specific allegations or roles of the directors in any contravention of the Act.

2. Imposition of Penalty on Directors:
The petitioners contended that the authorities had exceeded the scope of the show cause notice by imposing penalties on the directors without any prior allegations or proposals in the notice. The court referred to the Delhi High Court's judgment in L P Desai vs. Union of India, which emphasized that directors must be individually notified and given the opportunity to respond to specific allegations against them. The court found that the show cause notice did not provide such specific allegations or proposals against the directors, thereby invalidating the imposition of penalties on them.

3. Violation of Principles of Natural Justice:
The petitioners argued that the orders violated the principles of natural justice as they were not given a proper opportunity to respond to the allegations. The court highlighted that Section 14 of the FTDR Act mandates the issuance of a notice informing the person of the grounds for imposing a penalty and providing an opportunity to make a representation. The court found that the show cause notice did not adequately inform the directors of the grounds for penalty and did not provide a proper opportunity for them to be heard. The court concluded that merely stating that the notice should be brought to the directors' attention was insufficient and did not satisfy the requirement of providing a fair hearing.

Conclusion:
The court held that the show cause notice was invalid as it did not propose any penalty against the directors and failed to provide specific allegations or roles of the directors in any contravention. The court also found that the imposition of penalties on the directors violated the principles of natural justice as they were not given a proper opportunity to respond to the allegations. Consequently, the court quashed the order-in-original dated 15.07.2009 and the order-in-appeal dated 07.10.2010, allowing the petition and making the rule absolute.