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TMI Blog2025 (4) TMI 1607X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as "DGFT"] against M/s Poysha Industrial Company Ltd. and all its Directors, whereby the Four Order(s)-In-Original two dated 08.09.2009 and two dated 17.09.2009 were upheld. These Order(s)-In-Original levied a fine of Rs. 11,50,81,116/- on the Company M/s Poysha Industrial Company Ltd. [hereinafter referred to as "Company"] and its Directors. 3. Briefly the facts are that the Petitioner was appointed as a non-executive Director of Company. During the time period of 1989-1991, the Company obtained certain Advance Licenses for importing Tinplates. As per the terms and conditions of these licenses, the Company was required to fulfil specific export obligations. 4. A reference was filed under Section 15 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 [hereinafter referred to as "SICA"] by the Company and by an Order dated 26.10.1993, the Board of Industrial and Financial Reconstruction [hereinafter referred to as "BIFR"] had declared the Company to be a Sick Industrial Company within the meaning of Section 3(1)(o) of the SICA [as it stood at that time]. The BIFR gave its finding in order dated 20.12.1996 that under Section 20 (1) of the SICA A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,23,852/- 2. 03/02/002/00135/AM09/ECA dated 08.09.2009 For import of 103.73 MTs of Tin plate prime (duty exemption upto 99.22 MTs only). With an obligation to export 11,00,000 Nos. (having 90.20 MTs Tinplate Prime Content) of C.T.S. Cans. 57,75,600/- 3. 03/02/002/00134/AM09/ECA dated 17.09.2009 For import of 20.61 MTs of Tinplate Prime. With an export obligation of 2,40,000 Nos (18.24 MTs) of C.T.S. Cans. 11,60,000/- 4. 03/02/002/00132/AM09/ECA dated 17.09.2009 For import of 1785.95 MTs of Tinplate Prime (Duty exemption upto 1708.2 MTs). With an obligation to export 1538 MTs (91,90,000 Nos) of C.T.S. Cans for packaging of 100gms instant coffee. 10,80,21,664/- 6. It is the case of the Petitioner that the Petitioner was appointed as an independent non-executive director of the Company in the year 1985 and was neither a promoter nor was involved in the day-to-day affairs of the Company. The Petitioner resigned from the position of Director on 04.07.1997. 6.1 Since, the Bombay High Court, by its order dated 09.01.1998 had directed the winding up of the Company and the Official Liquidator took possession of all books of accounts and business records, no papers or records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal only on 08.09.2009, after a lapse of 17 years, rendering the proceedings time-barred. It is a settled law that if a Show Cause Notice is issued but no action is taken within a reasonable period, it becomes a dead letter. With respect to the other Show Cause Notices which were issued 14 and 18 years after the date of the transaction it was submitted that it is a settled principle that in the absence of a prescribed limitation period for initiating proceedings the same must be taken within a reasonable timeframe. Reliance is placed on the judgments of the Supreme Court in Godrej and Boyce v. State of Maharashtra (2014) 3 SCC 430 and State of Punjab v. Bhatinda district Cooperative Milk Producers Union Ltd. (2007) 11 SCC 363. 8.3 Learned Senior Counsel contends that the Petitioner cannot be held liable for the alleged non-compliance as the Company was already wound up in 1998, and all records were taken over by the Official Liquidator. The failure to submit documents in compliance with export obligations could not have been attributed to the Petitioner as he had no access or control over Company records after 1998. If at all any notice was to be issued, it ought to have been iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veil, as the Directors of the Company were fully aware of the non-compliance at the time of applying for the Advance License but chose to ignore their obligations despite repeated reminders. 9.4 Lastly, learned Counsel for the Respondent placed reliance on a judgment passed by the Supreme Court in the case of Life Insurance Corporation of India v. Escorts Ltd. & Ors. 1985 SCR Supp. (3) 909, which has laid down the principle that the corporate veil may be lifted where fraud, misconduct, or evasion of statutory obligations is evident. It is contended that the directors of the Company wilfully sought to evade the conditions of the Advance License and cannot escape liability by claiming that the Company has been wound up. 10. By an Order dated 30.07.2014, a Coordinate Bench of this Court passed an order directing that no coercive steps for recovery of any payment from the Petitioner shall be taken by the Respondent till further orders. The said position has continued till today. 11. The issue before the Court is whether the Petitioner, as an independent non-Executive Director on the Board of a Company that has violated an export obligation, can be made liable personally and penaliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was brought to the notice of adjudicating authority in the Review Petition filed against order dated 08.09.2009 under Section 16 and 17(3) of the FTDR Act filed by the Petitioner [hereinafter referred to as "Review Petition"]. The Petitioner had set out therein that in the early 1990s, the Company's net worth was completely eroded. Consequently, the Company made a reference to the BIFR under Section 15 of the SICA in 1993 when the Company was declared to be a sick industrial Company. It was further set out therein that in pursuance a Company Petition was filed in the Bombay High Court and the Company was wound up by an order dated 09.01.1998 in view of the fact that no workable proposal for its revival had been put forth. 14.2 The Petitioner had resigned as an independent non-executive Director on 04.07.1997. The Official liquidator had thereafter on 06.02.1998 taken possession of books, accounts, and files and business accounts of the Company and sealed the offices of the Company. It is not disputed that the Company had several directors and the Petitioner was only one of them. The Petitioner has stated that being a non-executive independent Director of the Company, he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment & Regulation) Act, 1992, and the firm was, therefore, issued Show Cause Notice dated 29.06.2004 by this office in terms of powers vested in undersigned under Section 13 of the said Act requiring the firm to show cause within 15 days as to why action to impose penalty should not be taken against the firm and its Directors under Section 11 of the Foreign Trade (Development & Regulation) Act, 1992. The firm was directed to reply to the Show Cause Notice along with corroborative documents giving evidence in support of their contentions to reach the undersigned within the stipulated period and were warned that failure to do so will be presumed that they had nothing to say in their defence in the matter and the case will be decided ex-parte on merits, on the basis of information and evidence available on record without making further reference to the firm. The Noticee firm was also offered an opportunity of personal hearing by the said Show Cause Notice, to appear before the Joint Director General of Foreign Trade in this office. Further, the Noticee firm was issued a letter dated 22.07.2008, with another opportunity of personal hearing on 08.08.2008 and copies of the same was sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sent to all the Directors of the company. However no one turned up for the hearings. II. It has been stated that the alleged failure to submit requisite original documents as evidence of fulfilment of the export obligation was due the reason that the company had been ordered to be wound up. Also the Directors had ceased to be Directors of the company. III. From the available documents of the Company it is seen that it has been listed as a sick company under the section 3(1)(o) of SICA Act 1985 and official liquidator has been appointed. IV. A perusal of the Adjudication orders passed by the RA reveals that though it was brought to the notice of the Adjudication Authority that the Company is wound up and official liquidator has been appointed, no documentary proof of the same have been submitted to the Adjudicating Authority. This fact is clearly mentioned in the Adjudication Orders passed in these cases. In the absence of any documentary proof, the Adjudicating Authority cannot merely stay proceedings based on a letter from the Petitioners. Moreover, the Petitioner has never contended before the Adjudicating Authority that the Authority doesn't have power to proceed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be wound up on 09.01.1998, all notices should have been issued to the Official Liquidator of the Company, which was concededly not done by the Respondent. The Petitioner had no control over the Company and was not even in a position to provide any documents as required by the Respondent. If at all any notice was to be issued, it ought to have been issued to the Official Liquidator. In these circumstances, the Respondent imposing the penalty on the Petitioner is arbitrary in the given facts. 20. The issue that obtains in the present case also obtains in a matter decided by this Court, the Pankaj Mehra case. In the said case, a similar situation had arisen where after order for winding up of the Company was passed, notices under Section 11 of the FTDR Act were issued by the Respondent and Order(s) in Original were passed fastening a personal liability on the Directors of the Company for their role in the non-fulfilment of export obligations of the Company. This Court examined these Orders-in-Original and the final adjudication undertaken by the Respondent and found that no averment fastening personal liability on a Director was made either in the show cause notice or in the Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxx xxx 14. In order to sustain the imposition of a punishment on an individual Director it was incumbent on the Respondents to allege and assert the existence of a duty or obligation cast on one or all the Directors of the defaulting Company and the contumacious failure to fulfil it. The Show Cause Notice does not mention the grounds on which individual liability is sought to be fastened on the Director. Neither of the Orders, that is, the Order in Original or the Appellate Order, disclose reasons which have persuaded those Authorities to come to the conclusion that the Petitioner had assumed an obligation or duty in ensuring that exports corresponding to four times the CIF value would be undertaken within the prescribed period. To assume or foist such a liability on the Directors would run counter to the basic tenets of Company law." [Emphasis supplied] 13. A similar view was taken by another Coordinate Bench of this Court in Ved Kapoor case, where the question arose as to whether the penalty imposed upon a company can be recovered from its directors. Relying on Krishna Kumar Bangur case, the Court held that unless the Respondents find that the Director was under a duty or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009. No explanation has been provided by the Respondent in these Four O-I-O's for the delay in taking steps against the Petitioner or the Company. No reason has been urged before this Court either. 23. The Respondent has placed reliance on the judgment of the Supreme Court in the Life Insurance Corporation of India case to submit that the corporate veil may be lifted in instances where fraud, misconduct, or evasion of statutory obligations is established. The said judgment was with regards to the government introducing Non-Resident Portfolio Investment Scheme under the Foreign Exchange Regulation Act, 1973, which permitted non-resident companies wherein at least 60% ownership or beneficial interest vested in non-resident Indian individuals to invest in shares of Indian companies. The said decision is entirely inapplicable to the present case. 24. In addition, the contention of the Respondent that the Petitioner being a whole-time director is automatically liable and culpable for the defaults of the Company is also misconceived. It is no longer res integra that in order for a Director to be vicariously liable for the offences of the Company unless such Director was in charge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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