TMI Blog2013 (8) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. It was the case of the petitioner, which was not contradicted by any person whose statement was recorded at the investigation and in fact it was corroborated by the material which was part of the complaint, that the petitioner had stated in so many words at the BCCI meeting that the permission of the Reserve Bank of India would have to be obtained for opening a foreign exchange bank account - In fact, the resolutions passed at various meetings of BCCI clearly indicate that all operational matters were to be dealt with by the Chairman of the Governing Council for IPL and officers engaged by the said Council and by the Secretary and Treasurer of BCCI. Adjudicating Authority after issuing show cause notice and receiving objections to the notice from the noticee, was required to apply his mind to the objections by recording his reasons for forming an opinion on the file – the recording of reasons was not an appealable order but it would give the noticee a chance during adjudication proceedings to meet the reasons which led the Adjudicating Authority to form an opinion that he must proceed further with the inquiry against notice - This would only result in fair proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olation of the Act. While the challenge to the notice of hearing dated 6 June 2013 is that the same has been issued without complying with the requirements of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (in short Adjudication Rules ). 3. Factual Matrix (a) During the period 2008 to 2011, the petitioner was President of the Board. In the year 2008, the Board commenced conducting a domestic Cricket tournament by the name of Indian Premier League (IPL). The first edition of the IPL in 2008 was conducted in India and it was immensely successful. (b) The Board had declared that the second edition of the IPL for the year 2009 was proposed to be held during the period 10 April 2009 to 24 May 2009. However, the Election Commission of India announced its schedule for the general elections in the country beginning from 13 April 2009 to 16 May 2009. In view of the above, the respondent no.1 i.e. Union of India advised the Board to change its schedule for the second edition of the IPL tournament from the point of view of providing security during the matches. (c) In the above circumstances, the Board called an Emergency Meeting of its Working Committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tices. (e) On 23 February 2012, the petitioner filed his individual common reply to the 11 impugned show cause notices dated 25 November 2011. In his reply, the petitioner contended that notices issued to him are without jurisdiction as Section 42 of the Act would have no application in his case. This is for the reason that the Board is not Association of individuals but an Association of other Associations which are individually either registered as Societies or Trusts. Moreover, the Board is not a body corporate nor is it a firm. Therefore, the Board not being covered by explanation to Section 42 of the Act, no occasion to apply the same for imposition of penalty upon the petitioner can arise. Besides, on merits it was contended that the petitioner was only an honorary President of the Board and that he had no role in conducting the second edition of the IPL in South Africa during the period 10 April 2009 to 24 May 2009. In the reply, it was pointed out that there was an independent subcommittee of the Board to conduct the IPL tournament called Governing Council for IPL of which one Mr.Lalit Modi was the Chairman and all decisions with regard to the conduct of the second editio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I had constituted a separate Committee to administer IPL under the Chairmanship of Mr.Lalit Modi with a separate bank account to be operated by Treasurer, BCCI. (ii) At the BCCI meeting held on 22 March 2009, after deliberations the only role assigned to the petitioner was to choose the venue of Second IPL, 2009 between United Kingdom and South Africa, and nothing more. (iii) At the said meeting attended by Secretary, BCCI and Treasurer, BCCI, the petitioner had specifically stated that the bank account for Second IPL 2009 at South Africa should be opened after seeking clearance of RBI and the bank account would be operated by Hon. Treasurer Mr.M.P. Pandove. The members agreed with the said observations and appropriate resolution in this regard was to be framed by Mr.N. Srinivasan, Secretary of BCCI. (iv) Opening and operating bank accounts of BCCI were operational matters entirely within the domain of Secretary and Treasurer of BCCI and Chief Executive Officer of Governing Council for IPL. As President, BCCI, the petitioner was not at all concerned with these operational matters. (v) The very fact that the petitioner had not even visited South Africa during IPL 2009 should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any or a firm or an association of persons, but it is an association of societies. The definition of person in Section 2(u) of the Act reads as under : (u) person includes (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding subclauses, and (vii) any agency, office or branch owned or controlled by such person. It is clear that the definition is an inclusive one and, therefore, BCCI as well as Governing Council for IPL are persons within the definition of Section 2(u) of the Act. 8. As regards the second contention of the petitioner regarding the specific role of the petitioner, the learned Counsel for the petitioner has addressed us at length and submitted that the petitioner was in no way in charge of, or was responsible for, opening or operating the bank account of the Governing Council of IPL. It was as far back as on 13 September 2007 that at the meeting of Working Committee of BCCI, BCCI had set up the Governing Council for IPL with Mr.Lalit Modi as the Chairman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. However, the scheme of the Adjudication Rules in question is different from the other inquiries where an authority issues a show cause notice, the noticee submits his reply, the authority then hears the complainant and the noticee for taking a decision in the matter. Ordinarily, inquiries are not divided into different stages, unlike the inquiry for which procedure is laid down in Rule 4 of the Adjudication Rules. In ordinary inquiries, the inquiry officer is not required to form any opinion before conclusion of the inquiry. On the other hand, the scheme of Rule 4 of the Adjudication Rules is quite different and the same is required to be examined both for the purpose of considering the last alternative submission of the petitioner about breach of Rule 4 of the Adjudicating Rules and also for considering the aforesaid preliminary objection raised by the learned Additional Solicitor General about maintainability of the Writ Petition. 11. It is the case of the petitioner that Special Director is not following the mandate of the Adjudication Rules while adjudicating the show cause notices. In such a case, if the case of the petitioner is correct, it becomes the duty of this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Adjudicating Authority, the Adjudicating Authority may proceed with the adjudication proceedings in the absence of such person after recording the reasons for doing so. (8) If, upon consideration of the evidence produced before the Adjudicating Authority, the Adjudicating Authority is satisfied that the person has committed the contravention, he may, by order in writing, impose such penalty as he thinks fit, in accordance with the provisions of section 13 of the Act. (9) Every order made under subrule (8) of rule 4 shall specify the provisions of the Act or of the rules, regulations, notifications, direction or orders or any condition subject to which an authorization is issued by the Reserve Bank of India in respect of which contravention has taken place and shall contain reasons for such decisions. (10) to (12) ... 12. On reading the above Rule, particularly subrule (1) (3) thereof, it is clear that on the issue of show cause notice, a noticee is permitted to submit his reply to the same. In terms of the above Rule, the Adjudicating Authority has to consider the objections raised by the noticee and only if he forms an opinion that an inquiry should be continued fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the objections to the show cause notice would be considered, only if they are of particular type, such as, the noticee is a stranger to the proceedings and no other objection would be considered while deciding whether or not the adjudication must be proceeded with further. Even if one were to proceed on the basis of the submission of the learned Additional Solicitor General that only some type of cases would fall within the mischief of Rule 4 (1) and (3) of the Adjudication Rules, yet the fact that the Adjudicating Authority has applied his mind to the objection raised by the noticee would only be evident if the formation of his opinion is recorded at least on the file. This forming of opinion need not be a detailed consideration of all the submissions but must show application of mind to the objections raised by the noticee. In case the objections are such as would require detailed consideration, the authority concerned can dispose of the objections by stating that the same would require detailed consideration, which would be done at the disposal of the notice by the final order. 15. However, this formation of opinion by the Adjudicating Authority is not required to be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable....... As is apparent from the complaint at Exhibit B , the amount for which the alleged contravention has taken place i.e. not obtaining the RBI permissions/clearances, are to the tune of about Rs.1314 crores. Hence, the penalty can go up to three times the said amount. Such an order would be enforceable under Section 14 of the Act, which provides that if any person fails to make full payment of penalty imposed on him within a period of 90 days from the date of service of notice for payment of penalty, he shall be liable to civil imprisonment and the civil imprisonment will be for a period up to six months [Section 14(9), 14(11) (b) of the Act]. Even after release from such detention, the person concerned would not be discharged from his liability for the arrears. 17. Even though an appeal would lie against such an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt has provided for giving of reasons recorded while reopening the assessment to the party and then dealing with the objections of the party. In this case, it has been specifically provided in Rule 4 of the Adjudication Rules that the noticee under the Act is entitled to raise objections to the issuance of the notice and the Adjudicating Authority is obliged to consider those objections and form an opinion whether or not to proceed further with the show cause notice. Formation of opinion itself would presuppose an application of mind to the facts and the objections of the party before it is decided to proceed further with the show cause notice. This opinion cannot be arbitrary, but must be supported by reasons, howsoever, minimal those reasons may be, to evidence application of mind to the objections raised by the noticee. 20. The nature of the adjudication proceedings, the nature of the alleged contraventions, the nature of alleged liability and the extent of penalty which may be imposed demonstrate why we are inclined to place the aforesaid interpretation on the provisions of Rule 4(3) of the Adjudication Rules in the context of the adjudication proceedings under Section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorised to engage a Chief Executive Officer and other staff to attend to day to day affairs of Indian Premier League, (c) Indian Premier League will have a separate Bank Account to be opened by the Treasurer, BCCI, Mr. N. Srinivasan ; and (g) Indian Premier League will have its separate office at the Cricket Center, Wankhede Stadium, Mumbai........ . (emphasis supplied) The following resolution was unanimously passed at the said meeting : It is hereby resolved that the Hony. Tresurer of BCCI is authorized to open a separate Bank Account in the name of Indian Premier League. 24. Again, at the meeting held on 16 December 2007, the Special General meeting of BCCI approved the amendment proposed by Mr.N. Srinivasan, then Secretary, BCCI, to the Rules and Regulations of BCCI as under : The Committee to administer Indian Premier League shall be appointed by the General Body of the Board and the term of the office members of the Committee shall be 5 years. The Committee shall comprise of the following : 1) Chairman 2) Four Members appointed by the Board 3) Three Excricketers of repute The Office Bearers of the Board during their tenure would be exofficio mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r stated that to the best of his knowledge no decision was put to vote at the GC. He denied having been informed about the various expenses before they were made by the BCCI in SA for IPL 2009. He further stated that the Hon. Secretary was authorized to approve expenses on behalf of BCCI. 27. The complaint under Section 16(3) and other provisions of the Act lodged with the Special Directorate of Enforcement (Adjudicating Authority) also indicates that remittances were made to Cricket South Africa for conduct of IPI 2 tournament as per the forms submitted by Mr. M.P. Pandove, the then Honorary Treasurer between 31 March 2009 and 27 August 2010. In paragraphs 2.2, 2.11 and 2.14 of the complaint, it is stated as under : 2.2 Investigation revealed that the BCCI entered into an agreement with Cricket South Africa (CSA) on 30.03.2009 for hosting and staging of the IPL2 tournament. The agreement with Cricket South Africa (CSA) was signed on behalf of BCCI by Shri N. Srinivasan, the then Honorary Secretary of BCCI. Under the said agreement CSA was required to open and operate a dedicated bank account in the name of IPL South Africa . .... 2.11 Shri Srinivasan, in reply to a quer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a has been pointed out in the statement of Mr.Pandove, Honorary Treasurer, recorded on 19 August 2011, which is set out in the complaint specifically as under : Further statement of Shri Pandove was recorded on 19th August 2011, wherein he inter alia, stated that the procedure in the BCCI for making remittances outside India was that all receipts and payments were effected after approval by the Working Committee/Honorary Secretary of the BCCI. In respect of the remittances made to CSA for hosting and conducting of the IPL in South Africa he stated that as per the decision of the IPL Governing Council and Working Committee, procedure for making the remittances was as under : a) The IPL Chairman, IPL Secretariat, IMG and CSA personnel were at South Africa to assist the CSA to conduct the tournament. b) The BCCI transferred the money, as per the authorisation of the IPL Chairman and confirmation by the BCCI/IPL staff deputed to South Africa and approval of the Honorary Secretary for the specific amount. c) All remittances were done as per the advices/debit notes received in the office of the Honorary Treasurer after due approval of the Honorary Secretary. He further stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perational matters. It is also the petitioner's case that the remittances and receipts of foreign exchanges without obtaining permission of Reserve Bank of India which took place without the petitioner's knowledge. The petitioner had exercised all due diligence to prevent such contravention by informing the Working Committee of BCCI at its meeting held on 22 March 2009 at Mumbai that permission of Reserve Bank of India should be obtained for opening an account and that the account would be operated by Treasurer Mr. M.P. Pandove. The Working Committee had accepted the above suggestion and the resolution in that regard was to be framed by Mr. N. Srinivasan. Mr. N. Srinivasan, Honorary Secretary of BCCI and Mr. M.P. Pandove, Honorary Treasurer of BCCI were also present at the said meeting apart from Mr.Lalit Modi who was the Chairman of the Governing Council for IPL, as would be reflected in the minutes of the said meeting. 32. The learned Additional Solicitor General has invited our attention to the following observations in paragraphs 8 and 9 of the decision of the Supreme Court in S.M.S. Pharmaceuticals Ltd. vs Neeta Bhalla and another, (2005) 8 SCC 89, in relation to para mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been rightly qualified by use of the words : Who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence, etc. What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained of and not on the basis of merely holding a designation or office. It would depend on what role one plays and not on designation and status. Since the nature of liability and consequences cast by Sections 13 and 14 of the Act, as indicated in paragraph 16 of this judgment, are no less penal than the liability and consequences under Section 138 of the Negotiable Instruments Act, the only persons who can be said to be connected with the contravention of FEMA at the relevant time have been subjected to action. That is why even in case of a person holding the position of a managing director, he will not be liable if he had no knowledge of the contravention when the contravention took place or if he had exercised all due diligence to prevent the contravention of the Act. The liability is thus cast on persons who had something to do with the transactions complained of. 36. Having further considered the rival submissions, we are of the view that since the material on record was sufficient to take the view that the petitioner himself was not in charge of and responsible for opening and operating the bank accounts involving receipts and remittances of foreign exchange to parties o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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