2020 (8) TMI 44 - SC - FEMA

Proceeding against a Director of a company for contravention of provisions of FERA, 1973 - Non-executive Director responsibility for the conduct of business of the Company - notice dated 19.02.2001 was issued by the Deputy Director, Enforcement Directorate to decide as to whether the adjudication proceedings as contemplated in Section 51 should be held against the Directors for contravention - HELD THAT - The appellant had not submitted any reply to show cause notice dated 19.02.2001 which though was addressed to the Company and all Directors and the reply was sent only by the Company Secretary on 26.03.2001. The representation dated 29.10.2003 was the first representation submitted by the appellant before the adjudicating officer during course of personal hearing. What is said by a person who is called for personal hearing even though given in the form of written representation dated 29.10.2003 required to be considered by the adjudicating officer otherwise the personal hearing shall become an empty formality and meaningless, specially when what was said by the appellant in his representation dated 29.10.2003 in no manner contradicted the reply 26.03.2001 sent by the Company Secretary. We, thus, are of the considered opinion that written representation dated 29.10.2003 submitted by appellant required due consideration and the High Court erred in discarding it as an afterthought. Whether the appellant has not brought any material on record either before the Adjudicating Authority or the Appellate Tribunal to prove that he was only a part-time, non-executive Director not responsible for the conduct of business of the Company at the time of commission of the offence? - Affidavit of Company Secretary dated 04.07.2003 clearly stating that the appellant who was Director of the erstwhile MXL was only a part time Director of the said Company and was never in charge of the day to day business of the Company was very much on the record of the adjudicating officer and the High Court erred in holding that the said material was not filed before the Adjudging Authority or the Appellate Tribunal. High Court, thus, discarded the plea of the appellant that he was part-time, non-executive Director as afterthought and did not consider the same on the ground that the affidavit dated 04.07.2003 relied by the appellant was not filed which, as noted above, is not correct. There was nothing on record brought on behalf of the Department that the above plea of the appellant was incorrect and it was the appellant who was responsible for the conduct of business of the Company at the relevant time. Thus, material was brought by the appellant on the record that he was a part-time, non-executive Director not in charge of the affairs of the Company at the relevant time, which was erroneously refused to be considered. Contravention of provisions of Section 8(3), 8(4) and Section 68 of FERA, 1973 by the appellant - Plea of the appellant that he was part-time, non-executive Director not in charge of the conduct of business of the Company at the relevant time was erroneously discarded by the authorities and the High Court and there is no finding by any of the authorities after considering the material that it was the appellant who was responsible for the conduct of business of the Company at the relevant time. Thus, present is a case where the liability has been fastened on the appellant without there being necessary basis for any such conclusion. Order which was passed on 13.02.2004 by the Deputy Director in adjudication proceedings although with regard to different period, the plea of the appellant that he was only a part-time, nonexecutive Director and not responsible of the conduct of business of the Company was accepted and notice was discharged against the appellant. The order dated 13.02.2004 although related to different period but has categorically noticed the status of the appellant as part-time non-executive Director. There being decision of Adjudicating Authority, in the recent past, passed on 13.02.2004, that the appellant was only a part-time nonexecutive Director of MXL, there has to be some reasons for taking a contrary view by the adjudicating officer in order dated 31.03.2004 with regard to affairs of the same company, i.e., MXL. We are of the view that the adjudicating officer has erroneously imposed penalty on the appellant for the alleged offence under Section 8(3), 8(4) and 68 of the FERA, 1973 which order was erroneously affirmed both by the Appellate Tribunal and the High Court. Appeal deserves to be allowed, the judgments of the High Court as well as those of the adjudicating officer and the Appellate Tribunal are set aside.

Summary

Issues Involved:
1. Plea of the appellant being a part-time, non-executive Director.
2. Evidence provided by the appellant to support his claim.
3. Adjudicating Authority, Appellate Tribunal, and High Court's error in holding the appellant liable under FERA, 1973.

Issue-wise Analysis:

1. Plea of the appellant being a part-time, non-executive Director:
The appellant contended that he was only a part-time, non-executive Director of Modi Xerox Ltd. (MXL) and was never in charge of nor responsible for the conduct of the business of the Company. The High Court rejected this plea, terming it an afterthought since it was not raised in the initial reply by the Company Secretary. However, the Supreme Court noted that the plea was first raised by the appellant in his detailed reply dated 29.10.2003, which was in response to the adjudication notice. The Court emphasized that this reply should have been considered and not dismissed as an afterthought because it was the appellant’s first representation during the adjudication proceedings.

2. Evidence provided by the appellant to support his claim:
The appellant submitted an affidavit dated 04.07.2003 from the Company Secretary stating that he was only a part-time Director and not in charge of the day-to-day business of the Company. The High Court erroneously observed that this affidavit was not filed before the Adjudicating Authority or the Appellate Tribunal. The Supreme Court found that the affidavit was indeed part of the record and should have been considered. The appellant's detailed reply and the affidavit provided substantial evidence supporting his claim that he was not responsible for the conduct of the business of MXL at the relevant time.

3. Adjudicating Authority, Appellate Tribunal, and High Court's error in holding the appellant liable under FERA, 1973:
The Adjudicating Authority imposed a penalty on the appellant without returning a specific finding that he was responsible for the conduct of the business of MXL. The Appellate Tribunal and the High Court upheld this decision without adequately addressing the appellant's plea and the evidence provided. The Supreme Court highlighted that for a Director to be held liable under Section 68 of FERA, 1973, it must be proven that the Director was in charge of and responsible for the conduct of the business of the Company at the time of the contravention. The Court referred to various judgments, including S.M.S. Pharmaceuticals Ltd. Vs. Neeta Bhalla and another, which established that liability arises from being in charge of and responsible for the conduct of the business, not merely from holding a position as a Director. The Supreme Court concluded that the necessary ingredients for holding the appellant liable were not present, and the authorities had erroneously imposed the penalty.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgments of the High Court, the Adjudicating Authority, and the Appellate Tribunal. The penalty imposed on the appellant was also set aside, as the evidence and the appellant's plea were not adequately considered, and there was no finding that the appellant was responsible for the conduct of the business of MXL at the relevant time.