Shailendra Swarup vs The Deputy Director, Enforcement Directorate

HELD: 1. The High Court committed error in observing that plea taken by the appellant in its reply dated 29.10.2003 was afterthought, since, no such plea was taken in reply to the show cause notice dated 19.02.2001. The notice dated 19.02.2001 although was addressed to the Company and all its Directors, the reply was given only by the Company Secretary and none of the Directors has given any reply. The notice dated 19.02.2001 was issued by the Deputy Director, Enforcement Directorate to decide as to whether the adjudication proceedings as contemplated in Section 51, of Foreign Exchange Regulation Act, 1973 (FERA, 1973) should be held against the Directors for contravention. When the Deputy Director decided to hold the adjudication proceedings under Section 51 reply given in response to the notice dated 08.10.2003 was statutorily required to be considered under Section 51 and the said reply could not have been ignored or knocked down by an erroneous assumption that it was an afterthought. 29.10.2003 was the date fixed by the adjudicating officer for personal hearing of the Directors. The appellant had not submitted any reply to show cause notice dated 19.02.2001 which though was addressed to the Company and all Directors and the reply was sent only by the Company Secretary on 26.03.2001. The representation dated 29.10.2003 was the first representation submitted by the appellant before 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. Thus, the written representation dated 29.10.2003 submitted by appellant required due consideration and the High Court erred in discarding it as an afterthought. [Para 16][101-G-H; 102-A-E]

2. The view of the High Court that the affidavit 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 is neither correct nor based on materials on the record. The adjudicating officer in its order dated 31.03.2004 has noted the reply dated 29.10.2003 on behalf of the appellant. The reply dated 29.10.2003 has been brought on the record of the paper book as Annexure P-4. In paragraph 10(1) of the reply dated 29.10.2003, the affidavit filed by the Company Secretary has been relied which was also enclosed with the reply as Annexure “C”. Thus, the affidavit of Company Secretary dated 04.07.2003 clearly stating that the appellant who was Director of the erstwhile Company 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. Thus, the material was brought by the appellant on the record that he was a part-time, nonexecutive Director not in charge of the affairs of the Company at the relevant time, which was erroneously refused to be considered. [Paras 17-20 & 22][102-F; 103-A-B; 104-A-B, D]

3.1 The adjudicating officer has imposed the penalty without returning a finding that it was the appellant who was liable for contravention of the provisions of Section 8(3), 8(4) and Section

68 of the FERA, 1973. No finding has been returned by the Appellate Tribunal that the appellant was not a part-time, nonexecutive Director and was responsible for the conduct of business of the Company at the relevant time. The order of the adjudicating officer, thus, is unsustainable. The Appellate Tribunal has also not considered the plea of the appellant and by making general observation that management of the Company is to be handled by the Board of Directors, hence, the appellant being Director is held guilty. [Paras 25-26][106-F-G]

S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another, (2005) 8 SCC 89 : [2005] 3 Suppl. SCR 371 – relied on.

3.2 Section 68 of FERA, 1973 deals with “Offences by companies”. 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 offence and is to be punished, necessary ingredients of the offence as required by Section 68 should be present. For proceeding against a Director of a company for contravention of provisions of FERA, 1973, the necessary ingredient for proceeding shall be that at the time offence was committed, the Director was in charge of and was responsible to the company for the conduct of the business of the company. The liability to be proceeded with for offence under Section 68 of FERA, 1973 depends on the role one plays in the affairs of the company and not on mere designation or status. [Paras 37-38][113-E-H; 114-D-E]

N. K. Wahi v. Shekhar Singh and others (2007) 9 SCC

481 : [2007] 3 SCR 883; National Small Industries Corporation Limited v. Harmeet Singh Paintal and another (2010) 3 SCC 330 : [2010] 2 SCR 805; Pooja Ravinder Devidasani v. State of Maharashtra and Another (2014) 16 SCC 1 : [2014] 14 SCR 1468; National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another (2010) 3 SCC 330: [2010] 2 SCR 805 – relied on.

N. Rangachari v. Bharat Sanchar Nigam Ltd. (2007) 5 SCC 108 : [2007] 5 SCR 329 – distinguished.

3.3 In FERA, 1973 for imposing a penalty under Section 50, the adjudicating officer is required to hold an enquiry after giving the person a reasonable opportunity for making a representation in the matter. Even though, FERA, 1973 does not contemplate filing of a written complaint but in proceedings as contemplated 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 contemplates 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. [Para 39] [114-F-H; 115-A]

3.4 It is correct that FERA, 1973 does not contemplate any complaint but the Scheme of the Act indicates 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. 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. But the presumption of a person in the commercial world is a rebuttable presumption and when adjudicating authority proceeds to impose a penalty for a contravention of FERA, 1973, essential ingredients constituting an offence under the FERA read with Section 68 has to be communicated to the person proceeded with to enable him to make effective representation in the matter. [Para 40][115-B-C]

3.5 An order which was passed on 13.02.2004 by the Deputy Director in adjudication proceedings although with regard to different period, the plea of the appellant that he was only a parttime, non-executive Director and not responsible of the conduct of business of the Company was accepted and notice was discharged against the appellant. The order dated 13.02.2004 although related to different period but has categorically noticed the status of the appellant as part-time non-executive Director. There being decision of Adjudicating Authority, in the recent past, passed on 13.02.2004, that the appellant was only a part-time nonexecutive Director of MXL, there has to be some reasons for taking a contrary view by the adjudicating officer in order dated 31.03.2004 with regard to affairs of the same company. [Para 42][115-F-H; 116-A]

4. Therefore, the adjudicating officer has erroneously imposed penalty on the appellant for the alleged offence under Section 8(3), 8(4) and 68 of the FERA, 1973 which order was erroneously affirmed both by the Appellate Tribunal and the High Court. [Para 43][116-B]