2010 (9) TMI 33 - HC - FEMA

Personal liability of Managing Director - contravention of provisions - Held that - t is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed the person accused was in charge of and responsible for the conduct of business of the company. - Merely, being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. - The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as Managing Director or Joint Managing Director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under subsection (2) of Section 141

Summary

Issues Involved:
1. Vicarious liability of a Nominee/Professional Director for acts of commission or omission by subordinates.
2. Validity of penalties imposed under the Foreign Exchange Regulation Act (FERA) and Customs Act.
3. Applicability of Section 68 of FERA and its interpretation in light of Supreme Court judgments.

Issue-wise Detailed Analysis:

1. Vicarious liability of a Nominee/Professional Director for acts of commission or omission by subordinates:

The central question of law in this appeal was whether a Nominee/Professional Director of a Joint Venture Company can be vicariously held liable for the acts of commission or omission of subordinates of the company. The Appellant, who was the Managing Director of Indian Card Clothing Ltd. (ICC) and a nominee director of Suessen Asia Ltd. (SA Ltd.), was held responsible for customs duty evasion by SA Ltd. The court examined whether the Appellant, in his capacity as a nominee director, could be held liable for the actions of the company's employees.

2. Validity of penalties imposed under the Foreign Exchange Regulation Act (FERA) and Customs Act:

The Appellant was penalized under FERA and the Customs Act for customs duty evasion and contravention of Section 9(1)(e) of FERA. The court scrutinized the penalties imposed, noting that the Tribunal had reduced the penalty from Rs. 2,00,000 to Rs. 50,000. The Appellant argued that he was not in charge of the day-to-day operations of SA Ltd. and that the Tribunal's findings were not supported by evidence. The court found that the Tribunal's decision was based on the absence of Form No. 32 from the Registrar of Companies, which the Appellant later produced, showing he was not the Managing Director of SA Ltd. during the relevant period.

3. Applicability of Section 68 of FERA and its interpretation in light of Supreme Court judgments:

The court analyzed Section 68 of FERA, which requires that a person must be in charge of and responsible for the conduct of the business of the company to be held liable. The court referenced the Supreme Court judgment in SMS Pharmaceuticals Ltd. Vs. Neeta Bhalla & Anr., which clarified that liability arises from being in charge of and responsible for the conduct of the business at the relevant time, not merely from holding a designation. The court emphasized that the Tribunal failed to establish that the Appellant was in charge of and responsible for the conduct of the business of SA Ltd. during the relevant period.

Conclusion:

The court concluded that the Tribunal's finding that the Appellant was in charge of the day-to-day operations of SA Ltd. was not supported by evidence. The Appellant's role as a nominee director did not automatically make him liable for the company's actions. The court allowed the appeal, answering the question of law in favor of the Appellant and against the Department, thereby setting aside the penalties imposed on the Appellant.

Judgment:

The appeal was allowed, and the penalties imposed on the Appellant were deemed unsustainable. The court emphasized the necessity of specific evidence to establish that a director was in charge of and responsible for the conduct of the business at the relevant time to hold them liable under Section 68 of FERA.

Final Order:

"Appeal allowed."