2022 (12) TMI 566 - HC - FEMA

Offence under FEMA - vicarious liability of the persons responsible - Responsibility of Directors - accused person following alleged contravention by him of the provisions of the said Act, being the Director of the company, along with the company and other co-accused persons, for alleged commission of such contraventions/offence - HELD THAT - During all these time petitioner was a Director of the accused company. He remained so till 2nd August, 1996, that is a date well within the statutory period of six months time. According to the scheme of this Act, he cannot relinquish his liability as regards the alleged contravention for this period at the time of and after export of the goods, till the time he remained as company s Director taking part in the affairs thereof, as suggested in the complaint, of course unless he rebuts the same with adequate materials. Under the circumstances, it cannot be said that the allegations made against the petitioner in the complaint do not prima facie constitute any offence, show the involvement of the petitioner therein, or make out a case against him, or that it do not disclose any cognizable offence at all. It can also not be said that the allegations made in the FIR are only absurd and inherently improbable, or that there is no sufficient ground for proceeding against him. The factual aspects of the case as discussed above, would definitely discard any intention of malafide or malice of the complainant, who intends to proceed against the accused person on the basis of available materials against him, prima facie constituting an offence. This should not lead to quashing a proceedings initiated to unearth the truth. See BHAJAN LAL 1990 (11) TMI 386 - SUPREME COURT Petitioner though being designated or appointed in the accused company as a Director , he was not entrusted with the management, affairs or policy of the same as part of his duty as a Director - Company s records and more so the specific averments in the complaint show otherwise. This, at one end, prima facie constitutes a contravention/offence and make out a case against him and at the other, duly complies with the statutory provision and dictum of the Hon ble Supreme Court in N. Rangachari s judgment (mentioned earlier). Hence this case shall not fall within the category of cases, where the power of this Court under section 482 Cr.P.C, 1973, may be exercised to prevent abuse of the process of the court or otherwise to secure the ends of justice. Contrarily, by following the ratio of the judgment of N. Harihara Krishnan vs. J. Thomas 2017 (9) TMI 1 - SUPREME COURT it can be stated that taking cognizance of an offence by the court is one of the initial steps in the whole process. Upon existence of prima facie material, the process of the court should not be hampered. Thus no merit in petitioner s case, this revision is dismissed.

Issues Involved:
1. Legality of the criminal proceeding under Section 56 of the Foreign Exchange Regulation Act, 1973.
2. Petitioner's liability as a 'Director' for the alleged contravention.
3. Timing of the alleged contravention.
4. Petitioner's resignation and its impact on liability.
5. Interpretation of relevant statutory provisions.

Issue-wise Detailed Analysis:

1. Legality of the criminal proceeding under Section 56 of the Foreign Exchange Regulation Act, 1973:
The petitioner challenged the criminal proceeding in Case No. C/2393/2002, pending in the Metropolitan Magistrate's court, under Section 56 of the Foreign Exchange Regulation Act, 1973. The petitioner, as a 'Director' of the company, was accused of contravening Sections 18(2) and 18(3) of the Act by failing to secure export proceeds within six months from the date of shipment. The trial court took cognizance of the offence and issued process against the petitioner, who sought discharge, but his application was rejected based on the Supreme Court judgment in Adalat Prasad vs. Rooplal Jindal, which held that a magistrate cannot recall process once cognizance is taken.

2. Petitioner's liability as a 'Director' for the alleged contravention:
The petitioner argued that he was a non-executive director, holding an honorary post without involvement in the company's day-to-day affairs. He contended that his resignation, effective from 2nd August 1996, absolved him of liability as the contravention period extended beyond his tenure. However, the opposite party argued that as a 'Director' during the relevant period, the petitioner was responsible for the company's actions, and proceedings should continue to determine the truth.

3. Timing of the alleged contravention:
The petitioner claimed that the contravention occurred after the statutory six-month period from the shipment date, which expired in October and November 1996, post his resignation. The court noted that the statutory period's expiry is the outer limit, and the duty to secure export proceeds arises within this period. Thus, the petitioner's involvement during the shipment period made him liable unless rebutted.

4. Petitioner's resignation and its impact on liability:
The petitioner emphasized his resignation before the expiry of the six-month period, arguing that he was not liable for any contravention post-resignation. The court examined documents, including the annual return and Form 32, confirming his resignation date. Despite this, the court held that the petitioner's responsibility during the shipment period could not be overlooked, as the statutory duty to secure export proceeds existed within the six-month period.

5. Interpretation of relevant statutory provisions:
The court referred to Sections 18(2), 18(3), and 68(1) of the Foreign Exchange Regulation Act, 1973. Section 68(1) holds every person in charge of the company's conduct liable for contraventions. Section 18(3) presumes contravention if export proceeds are not secured within the prescribed period. The court noted that the petitioner's argument regarding the contravention timing was refutable, as the statutory duty to secure proceeds existed within the six-month period. The court relied on judgments, including N. Rangachari vs. Bharat Sanchar Nigam Limited, which emphasized specific averments against directors for liability.

Conclusion:
The court dismissed the petitioner's revision, finding no merit in his arguments. It held that the allegations against the petitioner constituted a prima facie case, and his involvement during the relevant period made him liable unless rebutted. The court emphasized that the process should not be hampered upon existence of prima facie material, and the petitioner's case did not warrant quashing the proceedings.

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