A division bench comprising of Justice Ashok Bhushan and Justice R. Subhash Reddy heard the case of Shailendra Swarup v. Deputy Director of Enforcement Directorate. The Apex Court explained that the liability for an offence under Section 68 of Foreign Exchange and Regulation Act, 1973. It depends on the role one plays in the affairs of the company and not on mere designation or status.
Brief facts of the case
The Appellant was the Director of Modi Xerox Limited, later amalgamated and merged into another company, referred to as XMC. He was also a practising advocate of the Supreme Court. MXL made 20 remittances through his banker. The company did not submit the Exchange Control Copies of custom bills to the Reserve Bank of India, despite repeated reminders. These bills were to serve the purpose of evidence for imports into India.
The Enforcement Directorate after many hearings passed an order. It charged the company under section 8(3) read with 8(4) and Section 58 of the Foreign Exchange Regulation Act, 1973 (“FERA Act”). It imposed a penalty upon XMC, the new company. Appellate Tribunal for Foreign Exchange dismissed the appeal of the Appellant. Further, the Delhi High Court dismissed the appeal too. Following which, the present appeal has been filed.
A Sundaram, Learned Counsel for the Appellant submits that the High Court committed error in dismissing the appeal. The Appellant was not in charge of the conduct of the business of XMC. Just because the statement specifying Directors of the company included the Appellant, does not imply responsibility upon the Appellant. He stated that the Appellant was only a part-time, non-executive Director of XMC. He was not an employee of the company and also did not have any executive roles in the company.
The Additional Solicitor General by refuting the claims of the Appellant justified the penalty imposed on him. He submits that the proceedings initiated against the Appellant were under Section 51 of the FERA Act. And hence, the burden of proof lies on the Appellant to prove he had no role to play in the company.
The first point for consideration before the Bench was, if the defence of the Appellant being only part-time, the non-executive director was an afterthought. It observed that the first reply sent for the adjudication notice was made by the Company Secretary, and not by any Directors involved. Later, the Appellant submitted his reply affidavit stated his limited role in the company. The reply by the Appellant was in line with the prior reply by the Company Secretary. High Court hence erred in dismissing this plea as a mere afterthought. The second issue revolves around the proof of such a limited role. The Bench also accepted the affidavit submitted by the Appellant as evidence to prove his role in the company.
The third issue was about charging the Appellant under Section 8(3), 8(4) and Section 68 of the FERA, 1973. Here, the Court held that there existed nothing to prove that the Appellant was liable for the contravention of the above provisions.
The Bench agreed with the judgement in S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla 2005 8 SCC 89. Section 141 of the Negotiable Instruments Act, 1981 is to be considered similar in application to Section 68 of the FERA Act. These sections dealing with the offences by companies in the same manner.
The presumption that the Directors of a company being in charge of the affairs of the company is rebuttable. When adjudicating authority proceeds to impose a penalty for contravention of FERA Act, essential ingredients constituting offence have to be satisfied. These ingredients also have to be read with Section 68 of the Act. Further, such charges have to be communicated to the person along with an adequate opportunity for representation to defend.
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