TMI Blog2020 (8) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... come an empty formality and meaningless, specially when what was said by the appellant in his representation dated 29.10.2003 in no manner contradicted the reply 26.03.2001 sent by the Company Secretary. We, thus, are of the considered opinion that written representation dated 29.10.2003 submitted by appellant required due consideration and the High Court erred in discarding it as an afterthought. Whether the appellant has not brought any material on record either before the Adjudicating Authority or the Appellate Tribunal to prove that he was only a part-time, non-executive Director not responsible for the conduct of business of the Company at the time of commission of the offence? - Affidavit of Company Secretary dated 04.07.2003 clearly stating that the appellant who was Director of the erstwhile MXL was only a part time Director of the said Company and was never in charge of the day to day business of the Company was very much on the record of the adjudicating officer and the High Court erred in holding that the said material was not filed before the Adjudging Authority or the Appellate Tribunal. High Court, thus, discarded the plea of the appellant that he was part-tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed, the judgments of the High Court as well as those of the adjudicating officer and the Appellate Tribunal are set aside. - CRIMINAL APPEAL NO.2463 OF 2014 - - - Dated:- 27-7-2020 - HON. ASHOK BHUSHAN AND HON. R. SUBHASH REDDY, JJ. For Appellant(s) Mr. Jagjit Singh Chhabra, AOR Mr. Saksham Maheshwari, Adv. For Respondent(s) Mr. K.M. Nataraj, ASG Mrs. Shirin Khajuria, Adv. Ms. Ranjana Narayan, Adv. Mr. B. Krishna Prasad, AOR JUDGMENT ASHOK BHUSHAN, J. This appeal has been filed against the judgment of Delhi High Court dated 18.11.2009 dismissing the Criminal Appeal filed by the appellant by which appeal the judgment dated 26.03.2008 of the Appellate Tribunal for Foreign Exchange in Appeal No.622 of 2004 filed by the appellant was challenged. 2. Brief facts of the case giving rise to this appeal are: 2.1 Modi Xerox Ltd.(MXL) was a Company registered under the Companies Act 1956 in the year 1983. Between the period 12.06.1985-21.11.1985, 20 remittances were made by the Company-MXL through its banker Standard Chartered Bank. The Reserve Bank of India issued a letter stating that despite reminder issued by the Authorised Dealer, MXL had not sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 31.03.2004 imposing penalty of ₹ 1,00,000/- on the appellant, Appeal No.622 of 2004 was filed by the appellant before the Appellate Tribunal for Foreign Exchange which appeal came to be dismissed by the Appellate Tribunal on 26.03.2008. Against the order of the Appellate Tribunal dated 26.03.2008, Criminal Appeal No.575 of 2008 was filed by the appellant in Delhi High. The Delhi High Court by the impugned judgment dated 18.11.2009 has dismissed the appeal of the appellant, questioning which judgment this appeal has been filed. 3. The High Court, in Criminal Appeal, during pendency of the appeal has stayed the order of penalty. This Court while issuing notice on 19.02.2010 in the present appeal had also stayed the order of penalty imposed on the appellant. 4. We have heard Shri C.A. Sundaram, learned senior counsel for the appellant and Shri K.M. Nataraj, learned Additional Solicitor General for the respondent. 5. Shri C.A. Sundaram, learned senior counsel for the appellant submits that the High Court dismissed the appeal of the appellant holding that reply dated 29.10.2003 of the appellant taking the plea that he was only a part-time Director was only an afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly been imposed on the appellant. He submits that admittedly the appellant was Director during the relevant period which fact was admitted too in the reply given to the show cause notice. The show cause notice was issued against all the Directors including the appellant and no effort has been made by the appellant to disprove the allegations made against him. Learned Additional Solicitor General submits that there needs no specific complaint in proceedings of FERA, 1973 as opposed to complaint under Negotiable Instruments Act. When the proceedings have been initiated under Section 51 of the FERA, 1973, the burden is on the appellant to prove that he had no role to play on behalf of the Company. 8. Learned counsel for the parties have placed reliance on few decisions of this Court which shall be referred to while considering the submissions of the parties in detail. 9. From the submissions made by the parties and materials on records following points arise for determination in this appeal: (1) Whether the plea taken by the appellant in its reply dated 29.10.2003 that he was only a part-time, non-executive Director and was never in charge of nor even responsible for the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Foreign Exchange Regulation Act, 1973 (46 of 1973) should not be held against them for the aforesaid contravention. 12. The show cause notice, thus, asked the Directors to show cause as to why adjudication proceedings as contemplated in Section 51 of the FERA, 1973 should not be held against them. The reply to the said notice was sent only by the Company through Acting Company Secretary dated 26.03.2001. The Deputy Director, Enforcement Directorate after considering the reply to show cause by XMC's vide letter dated 26.03.2001 decided to hold adjudication proceedings as contemplated in Section 51 of FERA, 1973. Adjudication notice dated 08.10.2003 was issued by Deputy Director, Enforcement asking the Directors to appear for personal hearing on 22.10.2003. It is relevant to reproduce the contents of the notice dated 08.10.2003 which are to the following effect: DIRECTORATE OF ENFORCEMENT FOREIGN EXCHANGE MANZMENTNT MINISTRY OF FINANCE DEPARTMENT OF REVENUE GOVERNMENT OF NDIA HEAD QUARTERS OFFICE, 6TH FLOOR LOK NAYAK BHAWAN, KHAN MARKET NEW DELHI -110 003. F.NO.T4.2O/DZ/2001/DD(AV)VM/4571 DATE 8/10/2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall hold an inquiry in the prescribed manner after giving that person a reasonable opportunity for making a representation in the matter and if, on such inquiry, he is satisfied that the person has committed the contravention, he may impose such penalty as he thinks fit in accordance with the provisions of that section. 14. The provisions of Section 51 as noted above oblige the adjudicating officer to hold an inquiry in the prescribed manner after giving that person a reasonable opportunity for making a representation in the matter. 15. When notice dated 08.10.2003 was given for adjudication proceedings it was obligatory for the adjudicating officer to give opportunity for making representation. In response to the notice dated 08.10.2003 the appellant has submitted a detailed reply dated 29.10.2003. In his reply the appellant apart from other facts stated following: 1. The undersigned is a practicing Advocate of the Hon'ble Supreme Court of India and was only a part-time, non-executive Director of erstwhile Modi Xerox Limited and was never in its employment nor ever had any executive role or function in the said Company. Further the undersigned was never in char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the adjudicating officer during course of personal hearing. What is said by a person who is called for personal hearing even though given in the form of written representation dated 29.10.2003 required to be considered by the adjudicating officer otherwise the personal hearing shall become an empty formality and meaningless, specially when what was said by the appellant in his representation dated 29.10.2003 in no manner contradicted the reply 26.03.2001 sent by the Company Secretary. We, thus, are of the considered opinion that written representation dated 29.10.2003 submitted by appellant required due consideration and the High Court erred in discarding it as an afterthought. POINT NO.2 17. We may further note that the High Court in its judgment has observed that affidavit relied upon by the appellant dated 04.07.2003 of the Company Secretary had not been filed either before the Adjudicating Authority or the Appellate Tribunal nor any such plea was taken in the earlier communications. This has been observed in paragraph 17 of the impugned judgment, which is to the following effect: 17. It was only as an afterthought and later on that the petitioner in his subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal. 21. The High Court, thus, discarded the plea of the appellant that he was part-time, non-executive Director as afterthought and did not consider the same on the ground that the affidavit dated 04.07.2003 relied by the appellant was not filed which, as noted above, is not correct. There was nothing on record brought on behalf of the Department that the above plea of the appellant was incorrect and it was the appellant who was responsible for the conduct of business of the Company at the relevant time. 22. We, thus, are of the view that the material was brought by the appellant on the record that he was a part-time, non-executive Director not in charge of the affairs of the Company at the relevant time, which was erroneously refused to be considered. POINT NO.3 23. The Adjudicating Authority has in its order dated 31.03.2004 noted the reply dated 29.10.2003 filed on behalf of the appellant and Adjudicating Authority has extracted several paragraphs of the reply of the appellant. Paragraph 10 of the reply has been extensively quoted by the Adjudicating Authority specially sub-paragraph (1), (2) and (3) which are to the following effect: 10 It is prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings are otherwise not maintainable in law. 24. After noticing the above plea of the appellant, the Adjudicating Authority has noticed that letter dated 26.03.2001 of the Company Secretary where he has given the names of 13 Directors and after noticing the aforesaid 13 Directors the Adjudicating Authority has recorded its conclusion in following words: I have also gone through the replies received from other directors and found that they were not responsible for day to day activities of the company and were not the Directors during the relevant period which was between 12.06.1985 to 21.11.1985 and they were the nominees of IFCI, GIC, ICICI, UTI and IDBI respectively, hence, I drop the charges against the Directors except S/Sh. Bhupinder Kumar Modi, Umesh Kumar Modi, John Rodger Miligan, James Campbell White and Shailendra Swarup who were Directors at relevant time and responsible for working of the M/s Modi Xerox Ltd.,I hereby find them guilty and impose a penalty of ₹ 1,00,000/- (Rupees One Lakh only) each on S/Sh. Bhupinder Kumar Modi, Umesh Kumar Modi, John Rodger Miligan, James Campbell White and Shailendra Swarup and ₹ 5,00,000/- (Rupees Five Lakhs on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this subsection shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. (2) Notwithstanding anything contained in subsection (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Explanation .-For the purposes of this section- (I) company means any body corporate and includes a firm or other associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirements of Section 141. In paragraph 4 this Court lays down following: 4.....The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case an offence under Section 138 is committed by a Company, extends criminal liability for dishonour of cheque to officers of the Company. Section 141 contains conditions which have to be satisfied before the liability can be extended to officers of a company. Since the provision creates criminal liability, the conditions have to be strictly complied with. The conditions are intended to ensure that a person who is sought to be made vicariously liable for an offence of which the principal accused is the Company, had a role to play in relation to the incriminating act and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with the matter need not be roped in. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a Company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a Company at the relevant time. Liability depends on the role one plays in the affairs of a Company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the Section would have said so. Instead of every person the section would have said every Director, Manager or Secretary in a Company is liable ....etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. 12. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on account of holding an office or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge of the affairs of the company. With great respect, we see no warrant for assuming such a position in the context of the binding ratio in S.M.S. Pharmaceuticals Ltd. and in view of the position of the Directors in a company as explained above. 34. In the facts of the above case this Court held that allegations were clearly made out in the complaint. Judgment of this Court in N. Rangachari, thus, does not help the respondent nor it, in any manner, dilute the ratio of three-Bench judgment in S.M.S. Pharmaceuticals Ltd.(supra). 35. We may notice one more judgment of this Court, National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and Another, (2010) 3 SCC 330, interpreting Section 141 of the Negotiable Instruments Act, 1881. After extracting Section 141 of the Negotiable Instruments Act dealing with offences by companies, this Court in paragraph 12 and 13 laid down:- 12. It is very clear from the above provision that what is required is that the persons who are sought to be made vicariously liable for a criminal offence under Section 141 should be, at the time the offence was committed, was incharge of, and was responsible to the company for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the conduct of the business of the company. 37. Section 68 of FERA, 1973 deals with Offences by companies . Section 68(1) provides that every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be deemed to be guilty of the contravention .. Section 68(1) creates a legal fiction, i.e., shall be deemed to be guilty . The legal fiction triggers on fulfilment of conditions as contained in the section. The words every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business has to be given some meaning and purpose. The provision cannot be read to mean that whosoever was a Director of a company at the relevant time when contravention took place, shall be deemed to be guilty of the contravention. Had the legislature intended that all the Directors irrespective of their role and responsibilities shall be deemed to be guilty of contravention, the section could have been worded in different manner. When a person is proceeded with for committing an off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Section 51, the person, who has to be proceeded with has to be informed of the contravention for which penalty proceedings are initiated. The expression after giving that person a reasonable opportunity for making a representation in the matter as occurring in Section 51 itself contemplate due communication of the allegations of contravention and unless allegations contains complete ingredients of offence within the meaning of Section 68, it cannot be said that a reasonable opportunity for making a representation in the matter has been given to the person, who is to be proceeded with. 40. Learned ASG is right in his submission that FERA, 1973 does not contemplate any complaint but the Scheme of the Act indicate that a person, who is to be proceeded with has to be made aware of the necessary allegations, which may constitute an offence on his part. This Court in N. Rangachari (supra) has observed that a person in the commercial world having a transaction with company is entitled to presume that the Directors of the company are in charge of the affairs of the company. The presumption of a person in the commercial world is a rebuttable presumption and when adjudicating authori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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