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2024 (7) TMI 424 - AT - FEMAUtilization of foreign exchange otherwise than for the purpose for which it was acquired - Contravention of provisions of section 8(3) r.w.s. 49 68 of FERA, 1973 - Liability of the appellant/clerk with the said company for the contravention committed by the company - penalty imposed on the appellant - as per DR appellant has admitted that he was director in the company for a brief period of 13 months -as argued Adjudicating Authority failed to appreciate the fact that penalty cannot be imposed upon him just because he was director of the company for a brief period between 20.06.2000 to 19.07.2001, whereas, the machinery was imported by the company during the year 1994-1995. HELD THAT - Admittedly, appellant was working as clerk with the said company during the year 1994-1995. There is nothing on record that being clerk, he was instrumental in conducting the business of the company and was thereby responsible for import of machineries, thereafter, for installation and initiating the manufacturing activity at SP-272-A, Matsya Industrial Area, Alwar, Rajasthan. There is nothing on record to show that present appellant was instrumental for not starting the manufacturing of the goods and thereafter making the export for M/s. Grapco Industries Ltd. to fulfil the export obligation. Learned Counsel for the respondent-ED failed to show any single document signed by the present appellant which may point out his role that he was instrumental in conducting the business of M/s. Grapco Industries Ltd. and further he intentionally failed to take any steps for the same and thereby he has vicariously liable for the contravention of provision under FERA. Simply because when the company was going through financial crisis, the then Managing Director R.P. Jhunjhunwala inducted him as Director, does not make him liable for the past act of the company committed during the year 1994-1995. We also find that the appellant s case is well supported by the decision of Satish Kumar Bhalla 2009 (2) TMI 929 - DELHI HIGH COURT as been cited on behalf of the appellant wherein it was held that Section 68 of FERA, 1973 is parimateria with Section 141 of the Negotiable Instruments Act, 1881 in reference to which the Hon ble Supreme Court held in S.M.S. Pharmaceuticals 2005 (9) TMI 304 - SUPREME COURT an averment must be made to the effect that the person was in charge of and responsible for the conduct of the business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in the company. It was further held that the petitioner could not be held responsible for conduct of business of the company only on account of his being a Director. The case for holding the appellant responsible is even weaker in the present case as the appellant only held the post of Director for a short while, many years after the alleged contravention. Therefore, the present appeal needs to be allowed by this Tribunal seeing the fact that present appellant has no role in commission of any contravention being inducted as Director at very late stage when there was no manufacturing activity and import-export business of the company. The present appeal is hereby allowed and thereby, impugned order passed by the Adjudicating Authority is hereby set aside. Any pre-deposit tendered by the appellant be returned within two months from the date of expiry of period of limitation, failing which respondent ED will be liable to pay interest @ 9% per annum from the said date. The bank guarantee or security tendered by appellant in lieu of pre-deposit, if any, stands discharged.
Issues Involved:
1. Contravention of provisions of Section 8(3) read with Section 49 and Section 68 of FERA, 1973. 2. Imposition of penalty on the appellant for contravention. 3. Responsibility and liability of the appellant as a director of the company. Issue-wise Detailed Analysis: 1. Contravention of provisions of Section 8(3) read with Section 49 and Section 68 of FERA, 1973: The case facts reveal that M/s. Grapco Industries Ltd. (formerly M/s. Grapco Granites Ltd.) was permitted to acquire foreign exchange worth DM 38,56,114.00 for importing machinery under the EOU Scheme. However, the company failed to fulfill its export obligations, thus contravening the provisions of Section 8(3) read with Section 49 of FERA, 1973. The investigation concluded that the foreign exchange was utilized otherwise than for the intended purpose. The appellant, Mahesh Kumar Agarwal @ Mahesh Kumar Nathany, along with other directors, was charged under Section 8(3) read with Section 68 of FERA, 1973. 2. Imposition of penalty on the appellant for contravention: The Adjudicating Authority imposed a penalty of Rs. 5,00,000/- on the appellant, holding him guilty under Section 68 of FERA, 1973. The appellant contested the penalty, arguing that he was not a director during the period of the alleged transactions (1994-95) and had no role in the import-export business of the company. He joined the Board of Directors in June 2000 and resigned in July 2001. The Adjudicating Authority, however, found that the appellant was working with the company since 1994 and became a director in 2000, thus holding him responsible for the contravention. 3. Responsibility and liability of the appellant as a director of the company: The appellant argued that he was merely a clerk during the relevant period and was not involved in the import-export business. He contended that his role as a director was nominal and he had no active involvement in the company's affairs. The Tribunal considered Section 68 of FERA, 1973, which states that every person in charge of and responsible for the conduct of the business of the company at the time of contravention is deemed guilty. The Tribunal found no evidence that the appellant was responsible for the import of machinery or the failure to fulfill export obligations. The appellant's case was supported by the Delhi High Court's decision in Satish Kumar Bhalla vs. UoI & Anr., which held that mere designation as a director does not imply responsibility for the contravention. Conclusion: The Tribunal concluded that the appellant was not responsible for the contravention as he was not involved in the import-export business during the relevant period. The penalty imposed by the Adjudicating Authority was set aside, and the appeal was allowed. The Tribunal ordered the return of any pre-deposit made by the appellant within two months, failing which the respondent would be liable to pay interest at 9% per annum. Appeal Allowed.
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