9911796707
TMI Blog1996 (5) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,00,000 SCN II Section 9(1 )(a) No penalty; Penalty already imposed in pursuance of SCN I. (1) (2) (3) (4) Section 9(1)( c ) Rs. 2,50,000 2. J.J. Dalai SCN I Section 9(1 )(d) Rs. 30,000 (as Director of 1st appellant) SCN II Section 9(1 )(a) No penalty; Penalty already imposed in pursuance of SCN I. Section 9(1)( c ) Rs. 30,000 (as Director of the 1 st appellant and constituted attorney of the appellant in Appeal No. 213). Appeal No. 213/88 Diamond Crucible Co. SCN II Section 9(1 )(a) No penalty (P.) Ltd. (DCCL) Section 9(1)( c ) Rs. 2,50,000 Appeal No. 267/88 1. J.D. Corporation SCN III Section 16(1) Rs. 1,00,000 2. J.J. Dalai SCN III Section 16(1) r/w 68(1) Rs. 50,000 (as a partner of the first appellant). 2. Initially SCN I dated 24-02-1983 was issued only to DCGPL and J.J. Dalai, the appellants in Appeal No. 266 of 1988 and it contained only one charge, viz., of making payment of the amount of DM 57,500 to Becker and Piscanter (B P) of Germany in violation of the provisions of section 9(1)( a) of the Act. Later on, it appears, a more comprehensive SCN, SCN II was sent to appellants. The allegation of contravention of section 9(1)(a) as made in SCN I was repeated against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the arguments in the other two appeals are similar to those made by him and will be repeated by the counsel in those appeals, it would not be necessary for him to make oral submissions. In the circumstances, it was decided that final order in Appeal No. 213 of 1988 be made on the basis of the record without personal hearing if the other two appeals are heard by a Bench of the Board. 6. The dispensation application in Appeal No. 266 of 1988 was heard and it was decided to dispense with the requirement of pre-deposit. This common order disposes of Appeal Nos. 266, 213 and 267 of 1988. 7. The allegations in SCN I are included in SCN II. Therefore, it will be sufficient to deal with SCN II only. The allegations in SCN II on which the charge of contravention of sections 9(1)(a) and 9(1)(c) are based are as follows. On or about 24-10-1978, U.J. Dalai, son of U.J. Dalai, obtained a letter of intent (LOI) from Government of India for manufacturing carbon and graphite products in India. In pursuance of the said LOI, U.J. Dalai entered into an agreement on 20-06-1980 with B P, a person resident outside India, for supply of know-how to the Indian company to be promoted by U.J. Dalai in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment between yourselves and ABC; (d) an amount of DM 60,000 which we are trying to repatriate in reimbursement of expenses incurred by you in providing to us preliminary information in respect of the projects and in visiting India on diverse occasions and otherwise in connection therewith. Should permission for such repatriation be not granted by the Indian authorities, wholly or partially, we shall make payment of the said amount or balance thereof, as the case may be, in some other manner acceptable to you; (e) an amount equivalent to the difference between DM 5,10,000 and the toted of amounts paid under sub-paragraphs (a) to (d) aforegoing, in the form of increase in the price of machines and equipment agreed to be purchased from you. Payment of such amount shall be effected by irrevocable and confirmed letter/s of credit established for payment of price for said machines and equipment ; (f) an amount of DM 3,71,000 shall be paid to you before June 30, 1981 at Grossalmerode, in cash. In case, we are unable to make this payment wholly or partially, we shall not later than June 30, 1981 establish in your favour irrevocable and confirmed latter/s of credit or bank guarantee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and 9(1)(c) has also been made against UJ. Dalai and JJ. Dalai, Directors of the appellant DCGPL and Dr. H.A. Shah and UJ. Dalai, Directors of DCCL and JJ. Dalai also as constituted attorney for Dr. H.A. Shah, in their capacity as persons in charge of and responsible to the respective companies for the conduct of their respective business by invoking the provisions of section 68(1). However, only JJ. Dalai has been found guilty. 12. The allegations made in SCN II are sought to be supported by the evidence of the seized documents, and the statements of JJ. Dalai dated 25-02-1982, 26-02-1982 and 27-02-1982 and those of UJ. Dalai and Dr. H.A. Shah of 09-08-1982 and 26-02-1982 respectively. 13. It is clear from the allegations in SCNs I II and the findings in respect of both the charges in the impugned order that the main evidence relied on by the Department is the seized letter. The contents of this letter are sought to be corroborated by other evidence, including the statements of JJ. Dalai, UJ. Dalai and Dr. H.A. Shah. It is, therefore, necessary to examine the evidence of the seized letter in the first instance. 14. The seized letter which according to the Department contains the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs was quashed. He stated that in those proceedings also, the evidence relied on by the prosecution was the same as that before the learned Adjudicating Officer. Shri Patel submitted that in that judgment, the Court held that presumption of section 72 cannot be attracted. The respondents, on the other hand, submitted that the judgment of the Court of Sessions is not relevant as the standard of proof in criminal proceedings is much more strict than in adjudication proceedings. We have given due consideration to the submissions made by the parties. We have also seen the judgment of the Court of Sessions of 25-10-1994. Section 72 contains a special rule of evidence in respect of seized and authenticated document received from outside India. Clause (a) is a rule of presumption in respect of such document in regard to the signature and handwriting of such document. Clause (c ) is the rule of presumption in regard to the contents of the document. This rule applies to a document which is seized from the custody or control of any person against whom it is tendered in evidence. The question arses whether the presumption under clause (c) is in respect of seized document contemplated in clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to what is the true import and purport of this document, what is its evidentiary value and whether it discloses, read alone or with any other evidence, the alleged contravention? 17. The appellant's stand in regard to the seized letter is contained in paras 8-13 of their reply dated 04-12-1985 to SCNII dated 11-07-1984. It is stated that around the time the two agreements were negotiated and executed, talks were going on with B P to make available to the two companies' full collaboration and benefit of further research. In order to save time a draft letter was prepared when JJ. Dalai was in Germany, recording the terms on which full collaboration could be offered by B P. The object of preparing this draft letter was to reduce in writing what additional benefits would be given to the appellants and on what additional payments. This letter also provided that in the event the Government of India did not sanction additional payments, B P may be compensated in some other legal manner, namely, by giving them agency for overseas sales, etc. It is further stated that the draft letter was prepared by B P and was brought by JJ. Dalai to India to consult his colleagues who were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made, reliance has been placed not on the seized letter but on the note of This of 17-02-1982 and the statement of J.J. Dalai. Thus, the seized letter is only a collateral evidence to lend additional support to the allegation of payment. On the other hand, for establishing the charge of contravention of section 9(1)(c), reliance has been placed primarily on the said seized letter and corroboration has been sought from the statement of J.J. Dalai and the bank guarantee. 20. The observations hereinbefore made, in our opinion, would provide the correct appreciation of the evidence of the unsigned letter and proper perspective for examination of the findings arrived at by the learned Adjudicating Officer. 21. The allegation made in SCN I is that DCGPL made a payment of DM 57,500 to Herst Thias of B P through Mike Desai of Canada in December 1981 without any general or special exemption of the RBI and thereby they contravened the provisions of section 9(1)(a). The learned Adjudicating Officer found the appellant guilty. The finding is based on the evidence of the unsigned letter, the letter of 29-09-1981 written by Thias of B P to J.J. Dalai (though it is C/o J.D. Corporation and not D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not establish that the amount of DM 57,500, even if it was a payment towards the amount of DM 60,000, was paid by the appellant-companies. In fact even in the SCNs it is alleged that the appellant arranged the payment through Mike Desai of Canada. The question arises whether in the facts as disclosed by the evidence relied on it can be said that the payment was made by appellant- companies ? 25. It is to be borne in mind that provisions of section 9(1)(a) are penal in nature as they are backed by monetary penalty as well as by imprisonment. They have, therefore, to be strictly construed. It is not permissible to stretch the language of the provision so as to cover the transactions or acts which are not expressly mentioned therein. It is to be noted that where the intention is to cover any act not done by a person himself but got done by or through another person, the Act contains express provisions to cover such acts. A perusal of the various provisions of the Act shows that where the intention of the Legislature was to cover a particular act done or got done by or through another person, it has used the expression 'caused to be'. The example is found in section 9 itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c), it is necessary to establish that, (i) there is a debt, (ii) there is an acknowledgement of that debt, and (iii) the acknowledgement of the debt is of the nature that it creates a right in favour of the non-resident to receive the payment of that debt. It is also necessary to establish that there is no general or special exemption by the RBI. We are not concerned with this element as the absence of such exemption is not disputed. 29. Debt is a certain sum due and payable on demand and recoverable by action in law. Thus, debt itself creates a right in favour of the creditor to receive the payment of the sum or recover it by action, if necessary. 30. Furthermore, what section 9(1)(c) prohibits is not merely incurring a debt, but acknowledgement of debt where acknowledgement is such as may create a right in favour of the non-resident to receive the debt. The right to receive payment contemplated in section 9(1)(c) is a right emanating from or founded on the acknowledgement itself and the right should be enforceable in law. No doubt the right emanating from acknowledgement may be actual, i.e., in praesenti or contingent, i.e., on happening of the contingency. But that does not mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to act as constituted attorney for U.J. Dalai and Dr. H.A. Shah. Both these persons in their statements denied having executed any power of attorney in favour of J.J. Dalai nor the department could show that any such power of attorney existed. No doubt it can be argued that DCGPL had already been incorporated before the unsigned letter was supposed to have been written and J.D. Dalai, being one of its Directors, had the authority to write that letter binding DCGPL to its terms. But this argument, at best, can apply to DCGCL and not to DCGL and DCCL, in our opinion, have rightly contended that since that company was incorporated after the date of the unsigned letter, whatever that date might be, the said letter cannot be used against that company in any case. There is no evidence to even suggest that DCCL after its incorporation on 23-06-1981 ratified or adopted the obligation sought to be undertaken on their behalf. Although, while the plea of non-existence of the appellant DCCL at the time when the unsigned letter would have been written, if at all, has force, it does not hold good in respect of DCGPL, who was competent to act through its Director- J.J. Dalai. However, even then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to establish that there was a debt in existence and the said letter sought to acknowledge that debt. There is nothing in the impugned order to show as to how the amount of DM 5,31,000 can be considered to be the amount outstanding by way of debt which was sought to be acknowledged in the said letter. In fact even in the SCN, there is no assertion of existence of any debt. The Department seems to have assumed that the unsigned letter seeks to reduce in writing the real agreement between the parties. But even if that be the case, the Adjudicating Officer ought to have seen that the letter contains mutual rights and obligations of the parties in respect of supply of know-how and related matters. If any amount is paid or undertaken to be paid in terms of an agreement, it is a payment in fulfilment of the contractual obligation in consideration of the performance of the agreement by the other party. For example, the payment of the amounts of the two agreements of 20-06-1980 and 29-09-1980 which are repeated in the unsigned letter were the payments in performance of those contracts; the payments were not payment of any debt. Had the two companies not paid those amounts, B P wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(1) and (2), it is not necessary to go behind the corporate veil as the liability of Directors, employees, etc., of a corporate entity or of a partnership firm has been expressly laid down therein. Moreover, the corporate veil, where permissible, is to be lifted to find out the real perpetrators of the alleged violations acting behind the veil of corporate entity. How could the question of lifting corporate veil arise for holding the corporate entity liable? A company is not liable under any contract entered into by its promoters or any other person unless it, after its formation, duly adopts or accepts the obligations under such contract. There is no evidence to show any such adoption or acceptance. Any contract in derogation of the provisions of section 46 of the Companies Act, 1956 is not binding on the company. 38. In view of the aforesaid discussion, although the learned Adjudicating Officer has rightly concluded that J.J. Dalai was the main person guiding and controlling the transaction with B P, he misdirected himself in holding the two companies responsible for contravention in face of the fact that there was no evidence to establish that any of the alleged action could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by it. On this finding, he held the appellants' guilty of contravention and imposed the penalties hereinbefore stated. 42. It appears from SCN III that the allegations against the appellant are based on a loose sheet of papers (page 5) and JJ. Dalal's statement of 26-02-1982, which was recorded immediately after the search of his premises. The loose sheet numbered as page 5 mentions the date as 31-12-1991. Below this, it is written in hand '29,000, balance + 123.66'. 43. The loose sheet No. 5 is not a complete statement of the amounts of commission earned, received and outstanding. This evidence itself cannot be the basis of any conclusion that an amount of DM 29,123 (p. 6) against the commission had become receivable but the appellant-firm failed to receive it. This evidence does not even indicate that the amount of DM 29,123.66 was outstanding at the time when hearing took place or even on 25-02-1982 when search took place. In absence of a complete statement of commission amount earned and remittances received up to a certain date, we fail to understand as to how it can be possible to determine whether any amount is outstanding and unless all the remittance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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