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2020 (3) TMI 1102 - SC - FEMAViolation of provisions of Section 10(6) of the FEMA Act - Responsibility of Authorised person - goods had arrived in India, but the Company failed to submit Bill of Entry and did not take delivery of the goods - goods not released and as such kept in bonded warehouse - defence of the appellant that he could not be made responsible for the stated contravention. For, he became the Managing Director of the Company much later i.e. on 22.10.2001 - HELD THAT - In the present case, the finding of fact is that the import of goods for which the foreign exchange was procured and remitted was not completed as the Bill of Entry remained to be submitted and the goods were kept in the bonded warehouse and the Company took no steps to clear the same. As a result, Section 10(6) of the FEMA Act is clearly attracted being a case of not using the procured foreign exchange for completing the import procedure. It is also possible to take the view that the Company should have taken steps to surrender the foreign exchange to the authorised person within the specified time as provided in Regulation 6 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 (for short, the FEMA Regulations ) issued by the Reserve Bank of India Contravention referred to in Section 10(6) of the FEMA Act is a continuing actionable offence. If so, the Company and the persons managing the affairs of the Company remain liable to take corrective measures in right earnest. Considering the admitted fact that the appellant took over the management of the Company on 22.10.2001 and was fully alive to the default committed by the Company, yet failed to take corrective steps in right earnest. Notably, being conscious of such contravention, the appellant had sought indulgence of the authorities for more time. Appellant cannot now be heard to contend that no liability could be fastened on him individually. Indeed, regulation 6 of the FEMA Regulations provides for the period within which the foreign exchange ought to be surrendered if the Company was not wanting to take delivery of the goods imported. That, however, does not mean that the contravention ceased to exist beyond the specified period. On the other hand, after the specified period as predicated in regulation 6 had expired, it would be a case of deemed contravention until rectified. It is not the case of the appellant that he is not an officer or a person in charge of and responsible to the Company for the conduct of the business of the Company, as well as, the Company on or after 22.10.2001. Considering the fact that the appellant admittedly became aware of the contravention yet failed to take corrective measures until the action to impose penalty for such contravention was initiated, he cannot be permitted to invoke the only defence available in terms of proviso to subSection (1) of Section 42 of the FEMA Act that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. In the reply filed to the show-cause notice by the appellant, no such specific plea has been taken. We hold that no error has been committed by the adjudicating authority in finding that the appellant was also liable to be proceeded with for the contravention by the Company of which he became the Managing Director and for penalty therefor as prescribed for the contravention of Section 10(6) read with Sections 46 and 47 of the FEMA Act read with paragraphs A-10 and A-11 (Current Account Transaction) of the Foreign Exchange Manual 200304. The first appellate authority and the High Court justly affirmed the view so taken by the adjudicating authority.
Issues Involved:
1. Prima facie contravention of Section 10(6) of the FEMA Act. 2. Responsibility for the contravention post-management change. 3. Applicability of Section 42 of the FEMA Act regarding contravention by companies. 4. Nature of the contravention as a continuing offence. 5. Liability of the Managing Director for actions of the company. Detailed Analysis: 1. Prima Facie Contravention of Section 10(6) of the FEMA Act: The adjudicating authority issued a show-cause notice on 19.5.2004, indicating a prima facie contravention of Section 10(6) of the FEMA Act. The Company had imported goods but failed to submit the Bill of Entry and did not take delivery, resulting in the goods being kept in a bonded warehouse. This was deemed a violation, warranting the issuance of a show-cause notice. The adjudicating authority concluded that both the Company and its Managing Director were guilty of the charge and imposed a penalty of ?10,00,000 each. 2. Responsibility for the Contravention Post-Management Change: The appellant argued that he took over the management of the Company in July 2002 and was not responsible for the initial contravention. However, the appellate authority noted that the appellant was aware of the imported goods and the need to clear them from the warehouse. Despite financial constraints, the appellant failed to take necessary steps to rectify the situation, leading to the continued contravention of Section 10(6) of the FEMA Act. 3. Applicability of Section 42 of the FEMA Act Regarding Contravention by Companies: Section 42 of the FEMA Act states that every person in charge of and responsible to the company at the time of the contravention is deemed guilty. The appellant argued that he was not in charge at the time of the initial contravention. However, the High Court held that the contravention was a continuing offence, and the appellant, being in charge of the Company post-2001, was responsible for taking corrective measures, which he failed to do. 4. Nature of the Contravention as a Continuing Offence: The High Court opined that the contravention was a continuing offence, as the obligation to submit the Bill of Entry and clear the goods from the warehouse remained unfulfilled. The contravention continued until corrective steps were taken. The Court cited the case of Chairman, SEBI Vs. Shriram Mutual Fund & Anr. to emphasize that mens rea is not essential for imposing a penalty for breach of civil obligations. 5. Liability of the Managing Director for Actions of the Company: The appellant, as the Managing Director post-2001, was held liable for the continued contravention. The Court noted that the appellant was aware of the contravention and failed to take corrective measures. The appellant's argument that he was not responsible for the initial contravention was dismissed, as the contravention continued during his tenure. The Court emphasized that the appellant did not exercise due diligence to prevent or rectify the contravention, making him liable under Section 42 of the FEMA Act. Conclusion: The appeal was dismissed, affirming the penalties imposed on the Company and the appellant. The Court held that the appellant, as the Managing Director, was responsible for the continued contravention of Section 10(6) of the FEMA Act and failed to take necessary corrective measures. The judgment emphasized the nature of the contravention as a continuing offence and the liability of the person in charge of the company's affairs.
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