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TMI Blog2024 (12) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004 is set out below: "11. I, in exercise of powers vested in me under Section 13 of Foreign Trade Development & Regulation) Act, 1992 do hereby impose fiscal penalty of Rs. 1,00,00,000/- (Rupees One crore only) on the firm M/s. Orkay Industries Ltd. N.K. M. International House, Babubhai Chinai Marg, 178, Backbay Reclamation, Mumbai-400 020 and also its Directors/Partners etc. under Section 11 (2) of Act." [Emphasis supplied] 3. Briefly the facts are that the Petitioner was employed as an Executive Director in a public limited company called M/s Orkay Industries Ltd [hereinafter referred to as "Company"], which was engaged in the export of polyester texturised yarn by processing partially oriented polyester yarn which it imported. 4. The Company went into liquidation and a provisional liquidator was appointed by the Bombay High Court on 21.04.1998. Pursuant to the order for provisional liquidation, the records and documents of the Company were taken over by the official liquidator appointed by the Court. The liquidation process was completed on 14.12.1998. 4.1 A show-cause notice was sent by Respondent No. 2 under Section 14 of the Foreign Trade (Development and Regulation) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that so far as concerns the application for export licence, the same was applied for the Company on 25.05.1994 by one Mr. G.K. Uchil. Thus, the liability, if any, would exist on the said person. 5.5 Learned Counsel for the Petitioner contends that this is a second round of litigation for the Petitioner. Originally the Respondent No. 2 had passed an ex parte order dated 21.03.2012 rejecting the Petitioner's Appeal. Since notice for hearing was never received by the Petitioner, he challenged the same before this Court by filing a Writ Petition No. 5550/2012 captioned Pankaj Kapal Mehra vs. Union of India & Ors. 5.6 A Coordinate Bench of this Court by its order dated 06.09.2012 set aside the order dated 21.03.2012 and directed the Respondent No. 2 to re-hear the Appeal and pass a speaking order. 5.7 Lastly, it was contended that the show-cause notice, OIO and Impugned Order have all been passed in the teeth of the law as laid down in Judgments passed by Coordinate Benches of this Court in Krishna Kumar Bangur v. Director General of Foreign Trade 2006 SCC OnLine Del 422 case and Ved Kapoor v. Union of India & Ors. 2013 SCC OnLine Del 3653, where in similar circumstances, it was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to the said Mr. G.K. Uchil to apply for the advance license making him responsible for the default. Learned Counsel for the Respondent seeks to rely upon the judgment of the Supreme Court in Standard Charted Bank v. State of Maharashtra and Ors. (2016) 6 SCC 62 in this regard. 7. By its order dated 23.02.2016, a Coordinate Bench of this Court had directed the Petitioner to disclose his shareholding in the Company and that of his family, on Affidavit. The Affidavit was filed by the Petitioner on 23.03.2016. Another Affidavit was directed to be filed by the Court on 23.07.2019 to clarify as to whether the Petitioner was one of the promotors in the Company and as to whether he held an executive position in the Company. 8. The issue before this Court is that whether the Petitioner as a Director of a Company that is in violation of an export obligation, could have been personally penalized therefor. 9. The show-cause notice was issued by the Respondent authority under Section 11 (2) of the FTDR Act. It is apposite to extract this provision, which is set forth below: "11.....(2) Where any person makes or abets or attempts to make any export or import in contravention of any pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1968 and I was not a promotor of the company. 2) Sometime during the 1980's I was employed as an executive director of the company, my role in the company was limited to project implementation, R&D and human resource management. 3) During my employment with the company, I was drawing a salary of Rs. 36,000/- per month." 10.2 A reading of the aforegoing Affidavits shows that the Petitioner was a salaried Director of the Company, who was also in charge of project implementation, Research and Development and human resource management. Thus, quite clearly, the Petitioner's involvement in the license procurement was restricted to signing on a power-of-attorney person on behalf of the company, pursuant to a board resolution passed by the Company. 11. On the aspect of territorial jurisdiction/forum non conveniens, the Respondents have relied on the judgment of the Supreme Court in Kusum Ingots case to submit that this Court cannot entertain the present Petition. This submission of the Respondents is misconceived. As has been referred to above, the Petitioner had previously challenged an order passed by Respondent No. 2 which challenge was allowed by a Coordinate Bench of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, which has been upheld, by the Impugned Order, passed by the Respondent No. 2 at New Delhi. Thus, a part of the cause of action has arisen in Delhi and this Court has the jurisdiction to entertain this Petition. 12. A Coordinate Bench of this Court in Krishna Kumar Bangur case, dealt with a similar issue where a show-cause notice was issued under Sections 8 and 11 of the FTDR Act to a company and all its directors, and reasons for arriving at the conclusion that a Director is personally liable, had not been adumbrated therein. It was held that where the authority had not specifically considered the role to be played by the Petitioner therein in the export performance and was reticent on the reasons for personal culpability of any of the directors, it could not be sustained. It was further held that if the show-cause notice or the orders in original and the appellate order did not disclose any reasons, the order would be set aside. The relevant extract of Krishna Kumar Bangur case is below: "6. The Show Cause Notice under Section 14 for action under Sections 8 and 11 of the Foreign Trade (Development and Regulation) Act, 1992 [hereinafter referred to as Act for short) dated 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of such Company. 11. In view of the legal proposition enunciated in the above-referred cases, the respondents would be competent to proceed against the petitioner under Section 11 (2) of the Act, if they are of the opinion that he was under a duty or obligation to fulfil the export obligation of the company and consciously failed to do so. Of course, in such a case, it would be incumbent upon the respondents to issue a notice under Section 14 of the Act to him, stating therein the ground on which such a liability is sought to be fastened on him. Such an obligation cannot be assumed merely on account of the petitioner being or having been a director of the company. 12. For the reasons stated hereinabove, both the writ petition are disposed of with a direction that the penalty imposed upon M/s. Hitkari China Limited shall not be enforced against the petitioner, though it can certainly be enforced against the company. This order, however, shall not come in the way of the respondents proceeding against the petitioner, under Section 11 (2) of the Act, in terms of this order." [Emphasis supplied] 14. A show-cause notice that was sent by Respondent No. 2 to the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the records to analyse the import export account so as to determine and prove the fulfillment of export obligations. We believe that the captioned license would be lying unutilized or would only have been utilized after the exports had already taken place." [Emphasis supplied] 15. The record reflects that the show-cause notice although was addressed to the Company and its 14 Directors, was not delivered to the Company or the other 13 Directors of the Company. The only person on whom the show-cause notice and the Impugned Order was served upon by the Respondent, was the Petitioner. The Reply of the Petitioner was thus in his individual capacity and not on behalf of the Company. 15.1 The OIO refers to the Company as a firm and acknowledges the Reply given by the Petitioner. It also states that all notices sent to the directors except for the Petitioner had come back with the remarks "office closed as Court sealed the premises". It acknowledges that the Company was wound up on 14.12.1998 by the Bombay High Court when possession of the factory books and records were sealed and notes that it is "impossible to get the required information". However, OIO goes on to exercise powers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y place in the Impugned Order. 17. This Court concurs with the judgments passed in Krishna Kumar Bangur case and Ved Kapoor case, which relying on Santanu Ray vs. Union of India 1988 SCC OnLine Del 169, have held that unless specific allegations have been made which discuss the role of a director in the export performance, there is no question of finding him personally liable for the same. The order impugned has failed to fulfil this or show any adjudication on this aspect. In the absence thereof, the Respondent cannot now by, taking additional grounds and pleas, attempt to go beyond the Impugned Order. 18. There is another aspect which has to be taken into consideration. The export licence was issued on 15.11.1994. Proceedings were initiated by issue of the show-cause notice on 07.04.2003. The OIO was then passed on 29.03.2004. The complaint of default in export obligations was of the year 1997. 18.1 The export obligation of the year 1997 was challenged by the Respondent in the year 2003, which led to the passing of the OIO on 29.03.2004 and Impugned Penalty Order on 24/25.06.2013. No explanation has been provided by the Respondents for the delay in taking steps against the Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay also be recovered from the company and demand may be raised to the official Liquidator." [Emphasis Supplied] 20. The Respondent has relied upon a judgment of the Supreme Court in the Standard Charted Bank case to submit that a whole time Director or an Executive Director is liable and responsible for the business of the Company. This judgment was in the context of quantification of liability of a Director of a Company under the provisions of Section 138 and 141 of the Negotiable Instrument Act, 1881, where the vicarious liability of the Director of the Company is specifically set out in the provisions of the said Act. Thus, this decision is inapplicable in the facts of the present case. 21. In addition, the contention of the Respondents that the Petitioner being a whole-time director is automatically liable and culpable for the defaults of the Company is also misconceived. In any event, the Petitioner has filed the Affidavits pursuant to the orders passed by this Court wherein he has clearly set out that he was only an employee director and that he had no role to play in the export obligation or licences. The Respondents have also not disputed the fact in its orders that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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