TMI Blog2003 (7) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 27-7-1995/7-8-1995 passed by the Additional Director General (Foreign Trade), New Delhi. By virtue of this Order, the Additional Director General (Foreign Trade), inter alia, imposed a penalty of Rs. 1.25 crores on, inter alia, the petitioner being a director of the said company. Being aggrieved by this Order, an appeal was preferred and the same was dismissed by the impugned Appellate Order dated 13-8-1997 passed by the Appellate Committee (Cell), Ministry of Commerce, Government of India. 3. The short point that arises for consideration in this petition is this : Whether a penalty could at all have been imposed on the petitioner when no show cause notice was issued to him inasmuch as the show cause notice dated 7-11-1994 was addressed only to the company? It is an admitted position that the said show cause notice was only addressed to the company and no separate show cause notice was either addressed to or served upon the petitioner. The only references to the directors were in Paras 4 and 7 of the said show cause notice which, to the extent relevant, are set out hereunder : 4. I, therefore, in exercise of the power vested in me under Section 4K of the Imports and Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Act ought to have been issued to him. Admittedly, no separate notice other than the show cause notice dated 7-11-1994 which was issued to the company has been issued to the petitioner or indeed to any other of the directors. It is also pertinent to note that the company has paid the total customs duty of Rs. 3,78,97,499/- as was demanded by the respondents. 6. Mr. Mahender Anand, the learned Senior Counsel who appeared on behalf of the petitioner, submitted that the provisions of Section 4L of the said Act were mandatory and substantive provisions. The section ensured that the valuable right of a person of being heard before a penalty was levied against him is not given a go-by. He emphasised that no order of adjudication of imposition of a penalty could be made unless and until the person on whom the penalty was sought to be imposed was given a notice in writing. The notice, according to him, was a condition precedent for any adjudication and/or imposition of a penalty. If the notice as contemplated in Section 4L of the said Act was not given, there could be no adjudication and, consequently, no imposition of penalty. He further submitted that the notice was not just any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application or the appellant may have, on its own motion, submitted certain representations, the duty of a quasi-judicial authority, as the Government undoubtedly is, in disposing of a matter under Section 77, could not be avoided in affording the appellant an opportunity to make representation. This requirement under Section 77(2) cannot be considered as an empty formality and sub-section (2) of Section 77 has to be complied with by the Government. This has not been done in this case. x x x x x 21. As mentioned earlier in the judgment the Government did not give any notice communicating to the appellant about entertainment of the application in revision preferred by the respondents. Even though the appellant had filed some representations in respect of the matter, it would not absolve the Government from giving notice to the appellant to make the representation against the claim of the respondents. The minimal requirement under Section 77(2) is a notice informing the opponent about the application and affording him an opportunity to make his representation against whatever has been alleged in his petition. It is true that a personal hearing is not oblig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid, then the validity of the proceedings taken by the income-tax officer without a notice or in pursuance of an invalid notice would be illegal and void. 8. Mr. Anand next contended that there would be no vicarious liability of directors for the offences by the company merely because they are directors of the company. It is his contention that unless and until specific acts of omission and/or commission are set out against an individual director, he cannot be vicariously held liable for the offences that a company may commit merely because he happens to be a director of the company. This submission is made in view of the fact that the petitioner is a director of the said company and there is no specific allegation against the petitioner even in the show cause notice dated 7-11-1994 which was issued to the company. It is therefore contended that the petitioner could not be held to be vicariously liable for the alleged offences committed by the said company. In this context, Mr. Anand has placed reliance on the decisions of the Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of his duties it can be safely inferred that he would undoubtedly be vicariously liable for the offence; vicarious liability being an incident of an offence under the Act. So far as the Directors are concerned, there is not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there is any act committed by the Directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the Directors (accused 4 to 7) has been made out ex facie on the allegations made in the complaint and the proceedings against them were rightly quashed. The third case relied upon by the Senior Counsel appearing on behalf of the petitioner (i.e., Abdul Aziz Aminudin v. State of Maharashtra) (supra), does not appear to be relevant and in support of the aforesaid proposition. 9. Mr. Anand next submitted that a show cause notice issued to the company without specifying any grounds of allegations in respect of the individual directors would, from the stand-point of the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing authority ought to have specifically sent a notice to the petitioner. This notice ought to have been in writing and ought to have contained the specific grounds on which it was proposed to impose a penalty on him as distinct from a penalty on the said company in respect of his acts of omission and/or commission. It is only then that the duty cast upon the adjudicating authority under provisions of Section 4L of the said Act could be said to have been discharged. That has not happened. The possibility that the said company upon the receipt of the said show cause notice may have communicated the contents of the notice to the petitioner is of no consequence. There is no duty cast upon the company to communicate the contents of the said notice to the petitioner. The duty is cast upon the issuing authority. This duty has not been discharged. As such, the mandatory provisions of Section 4L of the said Act have not been complied with and the order of adjudication imposing a penalty on the petitioner would be illegal and is liable to be set aside. 11. Mr. Anand also submitted that while the said company had 14 directors, only 5 directors had been picked up randomly leaving out 9 othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under Article 226 of the Constitution merely because some facet of the principle of natural justice was not followed particularly when no prejudice is shown to have been caused to the petitioner due to such non-compliance. In support of this proposition, Mr. Chawla has placed reliance upon two decisions of the Supreme Court in State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364 and Aligarh Muslim University v. Mansoor Ali Khan, VI (2000) SLT 415 = (2000) 7 SCC 529. In the first decision, the Supreme Court held as under (Pages 386-387) : In our respectful opinion, the principles emerging from the decided cases can be stated in the following terms in relation to the disciplinary orders and inquiries: a distinction ought to be made between violation of the principle of natural justice, audi alterum partem, as such and violation of a facet of the said principle. In other words, distinction is between no notice / no hearing and no adequate hearing or to put it in different words, no opportunity and no adequate opportunity . To illustrate take a case where the person is dismissed from service without hearing him altogether (as in Ridge v. Baldwin [1964 AC 40 : (1963) 2 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice caused to the complainant would not at all arise. This would be further clear from the observation of the Supreme Court in Para 33(3) of the said decision to the following effect : except cases falling under no notice , no opportunity and no hearing categories, the complained violation of procedural provision should be examined from the point of view of prejudice, viz., whether such violation has prejudiced the delinquent officer/employee in defending himself properly and effectively. Therefore, it would have to be seen as to whether the present case falls in the category of violation of principles of natural justice or in the category of violation of a facet of the principle of natural justice. In my opinion, since no notice at all was issued to the petitioner, which was a mandatory requirement under Section 4L of the said Act, the present case is one of violation of principles of natural justice and, therefore, the question of prejudice caused would not at all arise. It is also pertinent to note that as the petitioner had no notice, obviously he had no opportunity nor was he granted any hearing. 14. The second decision [AMU s case (supra)] relied upon by Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be taken advantage of by its own chairman, vice-chairman, managing director and other members of the board of directors. This is certainly not the situation here. No notice was admittedly issued to the petitioner. Only in the notice issued to the company was it mentioned that the same be brought to the notice of the directors including the petitioner. Whether the company brought the aforesaid notice to the knowledge of the petitioner or not is not a relevant consideration and, therefore, the factum of the company not informing the petitioner cannot be construed as a parallel situation to the one before the Supreme Court in the aforesaid decision. In the present case what is of utmost importance is the fact that no notice to the petitioner was issued by the respondents. That being the case, there was a clear violation of the mandatory statutory provision contained in Section 4L of the said Act. That apart, there was a violation of the principles of natural justice. 16. On behalf of the respondents, Mr. Navin Chawla next submitted that Section 41(l)(a) of the said Act provides for imposition of penalty on any person . The company being an artificial person has to act thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly, he was not heard, the adjudication order imposing a penalty on the petitioner would be illegal and would be liable to be set aside. Moreover, the question in this petition is not with regard to the imposition of a penalty on the company but with regard to the imposition of a penalty on the petitioner who happens to be a director in the said company. Therefore, the submissions of Mr. Chawla on this last aspect are not germane to the issues involved in the present petition. 18. Before parting with this case, it would be relevant to note that though the aforesaid discussion has proceeded on the assumption that no prejudice has been caused to the petitioner, in point of fact prejudice has actually been caused to the petitioner. This is so because the show cause notice was not issued to the petitioner. Even the show cause notice issued to the company did not contain specific allegations against the petitioner to which he could reply. No opportunity as such was given to the petitioner to represent against the proposed imposition of penalty. Obviously, the petitioner was not heard before the order-in-original was passed whereby the aforesaid penalty was imposed upon him. The mere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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