Shailendra Swarup vs The Deputy Director, Enforcement Directorate

REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.2463 OF 2014

SHAILENDRA SWARUP ... APPELLANT

VERSUS

THE DEPUTY DIRECTOR, ENFORCEMENT DIRECTORATE ... RESPONDENT

J U D G M E N T

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:

Signature Not Verified Digitally signed by MEENAKSHI KOHLI

2.1 Modi Xerox Ltd.(MXL) was a Company registered Date: 2020.07.27 16:06:48 IST Reason:

under the Companies Act 1956 in the year 1983.

Between the period 12.06.1985-21.11.1985, 20 2

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 submitted the Exchange Control copy of the

custom bills of Entry/Postal Wrappers as evidence

of import of goods into India. Enforcement

Directorate wrote to MXL in the year 1991-1993 for

supplying invoices as well as purchase orders.

MXL on 09.07.1993 provided for four transactions

and Chartered Accountant's Certificates for

balance 16 amounts for which MXL's Bankers were

unable to trace old records dating back to 1985.

MXL amalgamated and merged into Xerox Modicorp

Ltd. (hereinafter referred to as “XMC”) on

10.01.2000. A show cause notice dated 19.02.2001

was issued by the Deputy Director, Enforcement

Directorate to MXL and its Directors, including

the appellant. The show cause notice required to

show cause in writing as to why adjudication

proceedings as contemplated in Section 51 of

Foreign Exchange Regulation Act, 1973 (hereinafter

referred to as “FERA, 1973") should not be held 3

for contravention. Xerox Modi Corporation Ltd.

(successor of MXL) replied the show cause notice

dated 19.02.2001 vide its letter dated 26.03.2001.

The Directorate of Enforcement decided to hold

proceedings as contemplated in Section 51 of the

FERA, 1973 read with Section 3 and 4 of Section

49 of FEMA and fixed 22.10.2003 for personal

hearing. Notice dated 08.10.2003 was sent to MXL

and its Directors. Notice dated 08.10.2003 was

replied by the appellant vide its detailed reply

dated 29.10.2003. In the reply the appellant

stated that he is a practicing Advocate of the

Supreme Court and was only a part-time, non-

executive Director of MXL and he was never in the

employment of the Company nor had executive role

in the functions of the Company. It was further

stated that the appellant was never in charge of

nor ever responsible for the conduct of business

of the Company. Along with the reply an affidavit

of the Company Secretary dated 04.07.2003 that the

appellant who was the Director of erstwhile

Company-XML was only a part-time, Director of the

said Company and never in charge of day to day 4

business of the Company was also filed. The

MXL has also submitted a reply dated 29.10.2003.

The Deputy Director, Enforcement Directorate after

hearing the appellant, other Directors of the

Company passed an order dated 31.03.2004 imposing

a penalty of Rs.1,00,000/- on the appellant for

contravention of Section 8(3) read with 8(4) and

Section 68 of FERA, 1973.

2.2 Aggrieved by the order dated 31.03.2004 imposing

penalty of Rs.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.

5

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 afterthought. The High Court further

held that the affidavit dated 04.07.2003 of the Company

Secretary relied by the appellant does not appear to have

been filed either before the Adjudicating Authority or the

Appellate Tribunal and no such plea had been taken in the

earlier communications. Shri Sundaram submits that the High

Court committed error in dismissing the appeal of the

appellant whereas neither there was any material nor any

specific case of the Department that the appellant was in 6

charge of and responsible for the conduct of business of

the Company. The mere fact of Company-MXL in its reply to

the notice dated 19.02.2001 having given the names of the

13 persons as Directors of MXL does not amount to stating

that all the Directors were responsible for the conduct of

business of the Company. The appellant could have been

prosecuted and punished for the contravention of the

provisions of FERA, 1973 only after returning a finding

that it was the appellant who was responsible for the

conduct of business during the relevant period when

remittances in question were made by MXL. The Appellate

Tribunal without recording any finding that appellant was

in charge of the affairs of the Company held the appellant

liable, observing that there is nothing on record to show

that any restriction was placed on the powers of the

appellants as Directors of the Company with reference to

subject transactions. The Adjudicating Authority although

noticed the detailed reply given by the appellant dated

29.10.2003 but without returning any finding that the

appellant was Director who was responsible for working of

MXL at the relevant time imposed the penalty only relying

on the letter of the Company Secretary where names of the

persons who were in the Board of Directors were mentioned. 7

6. Shri Sundaram further submits that with regard to a

subsequent transaction, proceedings were initiated against

the appellant in respect to transaction of MXL where the

plea of the appellant that he was only a part-time, non-

executive Director and had no executive role or function

in the Company was accepted and proceedings were dropped

insofar as the appellant is concerned by order dated

13.02.2004 which order clearly noticed the status and role

of the appellant.

7. Learned Additional Solicitor General refuting the

submissions of the counsel for the appellant contends that

penalty has rightly 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 8

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 conduct of business of the Company at

the relevant time was an afterthought,

since, in the reply given by the Company

Secretary dated 26.03.2001 no such plea was

taken?

(2) Whether the appellant has not brought any

material on record either before the

Adjudicating Authority or the Appellate 9

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?

(3) Whether the Adjudicating Authority,

Appellate Tribunal and the High Court erred

in holding contravention of provisions of

Section 8(3), 8(4) and Section 68 of FERA,

1973 by the appellant without their being

any material that the appellant was

responsible for the conduct of business of

the Company at the time of commission of the

offence and without recording any specific

findings to that effect?

POINT NO.1

10. As noted above, the High Court has rejected the plea

of the appellant that he was part-time, non-executive

Director not responsible for the conduct of business of

the Company at the relevant period on the ground that the

above plea is an afterthought since in reply given by the 10

Company Secretary to show cause notice dated 19.02.2001 no

such plea was taken.

11. We may first notice the show cause notice dated

19.02.2001. The show cause notice dated 19.02.2001 was

given to the MXL and all Directors of MXL and along with

show cause notice Annexure 'B' was a list of Directors of

MXL where the name of the appellant was also included at

Serial No.12. It is relevant to notice following portion

of the show cause notice:

"AND WHEREAS it further appears that S/Shri – As per Annexure B Proprietor, Partner(s)/Manager/Secretary of the said company/firm has been responsible/supervisor/ incharge of the said company/firm for the conduct of business of the company/firm at the relevant time when the aforesaid import was made as such he/she/they has/have rendered himself/herself/themselves liable also to be proceeded against under Section 50 of the Foreign Exchange Regulation Act, 1973 (46 of 1973).

NOW THEREFORE, the said M/s Modi Xerox Ltd. as well as its Directors of the above address are hereby required to show cause in writing (in duplicate) within thirty days from the date of receipt of this Memorandum as to why adjudication proceedings as contemplated in Section 51 of the Foreign Exchange Regulation Act, 1973 (46 of 1973) should not be held against them for the aforesaid contravention.” 11

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

From

The Deputy Director of Enforcement 12

To M/s Modi Xerox Ltd.

Ground Floor, Hemkunt Tower, 98 Nehru Place, N. Delhi -19

And its Directors [As per fist attached].

Dear Sir /Madam,

Subject: Adjudication proceedings in respect of Memo No. T-4/20/D2/2001 (SCN.) Dated 19/2/2001

This is to inform you that after considering the cause shown by you in/as you have failed to reply to the above mentioned memorandum the Deputy Director of Enforcement is of the opinion the Adjudication proceeding as contemplated in Section 51 of FERA, 1973 read with Section 3 & 4 of section 49 of FEMA, 1999 should be held against you in accordance with the procedure laid shown in Rules of the Adjudication Proceedings & Appeal Rules, 1974 and has accordingly fixed this case for personal hearing before him on 22 Oct. 2003 [22nd OCT. 2003] at 12:30 pm in the office of this Directorate at the above mentioned address.

Now, therefore, you are hereby given an opportunity to present yourself either personally or through your lawyer or other authorised representative before the Deputy Director of Enforcement for personal hearing on the aforesaid date, time and place.

You may please note that in case you fail to appear before the Adjudication Authority on the aforesaid date he may proceed with the enquiry in your absence and pass Adjudication Order on the basis of material and evidence available to him.

Your attention in this connection is invited to 13

the provisions to Rule 3 of the Adjudication Proceedings & Appeal Rules, 1974 read with section 3 & 4 of section 49 of FEMA ,1999 whereby in case it is decided to hold Adjudication Proceedings personal hearing of the case could be waived at your request. In case you prefer to waive personal hearing you may intimate accordingly so that the case may be decided without your personal attendance on the basis of available evidence.

Yours faithfully, Sd/-

For Deputy Director”

13. We may also notice the provisions of Section 51 of

FERA, 1973, which is to the following effect:-

“Section 51. Power to adjudicate.—For the purpose of adjudging under section 50 whether any person has committed a contravention of any of the provisions of this Act (other than those referred to in that section) or of any rule, direction or order made thereunder, the adjudicating officer 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. 14

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 charge of nor ever responsible for the conduct of the business of the Company MXL nor did the Noticee ever had any executive role or function in the company.

2. The undersigned Noticee had not at any stage been involved in any discussions or decisions relating to the import by the said Company and never issued any instructions to any banker or any other functionary of MXL to get any remittance affected out of India for any import.

3. The Notices was neither in charge of nor ever responsible for conduct of the day to day business of MXL.”

16. The representation dated 29.10.2003 was, thus, first

representation submitted by the appellant in response to

adjudication notice and the plea taken by the appellant

that he was only a part-time, non-executive Director of 15

erstwhile MXL and was never in charge of nor even

responsible for the conduct of business of the Company was

the plea taken first time by the appellant and could not

have been termed either as afterthought or denied

consideration. 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. As

noted above 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 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

as has been done by the High Court. 29.10.2003 was the date

fixed by the adjudicating officer for personal hearing of 16

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. 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 17

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 subsequent reply dated 29.10.2003 took up a plea that he was only a part time director and relied upon an affidavit dated 4.7.2003 of the Company Secretary Mukesh Dugar which even otherwise does not appear to have been filed either before the Adjudicating Authority or the Appellate Tribunal. No such plea had been taken in any of the earlier communications.”

18. The above view of the High Court is neither correct

nor based on materials on the record.

19. 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”. Affidavit of the 18

Company Secretary dated 04.07.2003 which was enclosed with

the reply was to the following effect:

"AFFIDAVIT

I, Mukesh Dugar son of Sh. S.R. Dugar and presently the Company Secretary & Head – Legal of Xerox Modicorp Limited having its registered office at 109, Shivalik Apartments, Sector 3, Noida, Distt. Gautam Budh Nagar, Uttar Pradesh do hereby solemnly affirm and state as follows:

1. That Modi Xerox Limited has since been merged into Xerox Modicorp Limited vide orders dated 10.01.2000 and 21.01.2000 of Hon'ble Allahabad High Court.

2. That Mr. Shailendra Swarup, who was a Director of the erstwhile Modi Xerox Limited was only a part time Director of the said Company and was never in charge of the day to day business of the Company.

Place Gurgaon Sd/- Date 4/7/2003 DEPONENT

VERIFICATION

Verified that the contents of this affidavit are true to the best of my knowledge and no part of it is false and nothing material has been concealed therein.

Signed and verified at Gurgaon on this 4th day of July, 2003.

DEPONENT”

20. Thus, the affidavit of Company Secretary dated

04.07.2003 clearly stating that the appellant who was 19

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.

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.

20 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 that the proceedings initiated may kindly be dropped on the following amongst other main grounds, which are set out hereinafter without prejudice to one another and are in addition to the facts and submission set forth hereinabove

(1) That the Notice was a decorative part time non-executive Director and the Board Meetings attended by him have only been in his capacity as a part-time non-

executive Director and not in any other capacity. The Noticee was never in the employment of the company and never ever had nay executive role or function in the Company. A copy of the Affidavit filed by the noticee with his reply to Show Cause Notice No.T-4/337/DZ/2002 dated 28.05.2002 of the Company Secretary of XMC at the time to its swearing confirming that the Noticee was only a part-time Director of MXL and was never in charge of the day to day business of MXL is enclosed herewith and marked as Annexure - ‘C’. This Notice has been never engaged in day to day conduct of the business of MXL. He has never entered into any import 21

agreement. He has never issued any instructions to any person or the bank for causing any remittance abroad and as such he is not responsible for liable at all in any manner.

(2) It is respectfully submitted that the documents enclosed with MXL’s reply of 04.12.1991, 25.12.1991, 25.12.1991 and 09.07.1993 and XMC’s reply dated 26.03.2001 will establish that goods have been imported against the remittances mentioned in the Annexure and they had been duly reported to Reserve Bank of India and there is no evidence of goods not having been imported.

(3) This Noticee was never in charge of the day to day business of MXL and had no knowledge of the transactions in

respect of which the above referred Show Cause Notice dated 08.10.2003 had been issued much less any intent or knowledge of alleged contraventions as set forth therein. The certificates of compliances given by MXL management to the Board prove and establish that the contraventions alleged in the above referred Notice and the subject Memorandum, in any view of the matter if occurred, were without the knowledge and had nothing to do with the transactions in question, the question of this Noticee committing consciously or deliberately any contravention of the FERA or any other law or regulations does not arise and no penalty can in law be imposed on this Noticee. The adjudication proceedings are otherwise not maintainable in law.”

24. After noticing the above plea of the appellant, the 22

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 Rs.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 Rs.5,00,000/-

(Rupees Five Lakhs only) on M/s Modi Xerox Ltd. for contravention of Section 8(3) read with Section 8(4) and Section 68 of FERA, 1973, I also find the other directors were not joined the company at relevant time when the transaction had taken place and were not responsible for the conduct of the company, hence I drop the charges against S/Sh. Laurence Lyndon Haddon, Stephen Lawrence Tiemey, Bernard Fournier, R.S. Lodha, R.P. Goel, Jan Williams Van Erde, Chaman Lal Turki Dhar, Ramesh C. Vash, S.K. Jain, K.P. Narasimhan, Sunil Mitra, Sundershan Lal, R.K. Mahajan, C.G. Parekh, Kari Kumar and Usha Ranjan Saha.”

25. There is no consideration of pleas of the appellant as 23

has been extracted by the adjudicating officer himself as

noted above specially in paragraph 10(1), 10(2) and 10(3)

of the reply. The adjudicating officer has not even held

that the pleas taken by the appellant were untenable. The

adjudicating officer, thus, 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. The order of the

adjudicating officer, thus, is unsustainable on the above

ground also.

26. The Appellate Tribunal has also not considered the

above 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. No finding has been returned by

the Appellate Tribunal that the appellant was not a part-

time, non-executive Director and was responsible for the

conduct of business of the Company at the relevant time.

27. We may also notice few judgments of this Court some of

which have also been referred to by the learned counsel

for the parties. A three-Judge Bench judgment in S.M.S. 24

Pharmaceuticals Ltd. Vs. Neeta Bhalla and another, (2005)

8 SCC 89, had occasion to consider the provisions of

Section 141 of the Negotiable Instruments Act, 1981 which

provisions are pari materia to Section 68 of the FERA,

1973. Section 68 of the FERA, 1973 deals with Offences by

Companies and is to the following effect:

“68. Offences by companies.—

(1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, 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 and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub- section 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 sub-

section (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.

25

Explanation.—For the purposes of this section—

(I) “company” means any body corporate and includes a firm or other association of individuals; and

(ii) “director”, in relation to a firm, means a partner in the firm.”

28. In the Negotiable Instruments Act, 1881 initially

there was no provision regarding offences by Companies and

by Act 66 of 1988 Section 141 was inserted in the Negotiable

Instruments Act, 1881 which provision is to the following

effect:

“Section 141. Offences by companies.—(1) If the person committing an offence under section 138 is a company, every person 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 and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub- section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.

26 (2) Notwithstanding anything contained in sub-

section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed 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 that offence and shall be liable to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section, —

(a) “company” means anybody corporate and includes a firm or other association of individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.”

29. A bare reading of Section 141 of Negotiable Instruments

Act, 1881 indicates that sub-section (1) and sub-section

(2) of Section 141 are pari materia to Section 68 of FERA,

1973 which was already in the statute. This Court in S.M.S.

Pharmaceuticals (supra) had occasion to consider the

requirements 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 27

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. A company being a juristic person, all its deeds and functions are result of acts of others. Therefore, officers of a Company who are responsible for acts done in the name of the Company are sought to be made personally liable for acts which result in criminal action being taken against the Company. It makes every person who. at the time the offence was committed, was incharge of and was responsible to the Company for the conduct of business of the Company, the Company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. ”

30. This Court held that the criminal liability arises

from being in charge of and responsible for the conduct of

the Company at the relevant time. Elaborating the

requirement for a person to be made liable under Section

141 this Court laid down following in paragraphs 10 and

12:

28

“10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the Section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have 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 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 conduct 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 29

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 position in a company. Therefore, in order to bring a case within Section 141 of the Act the complaint must disclose the necessary facts which make a person liable. ”

31. The ratio of the above judgment has been reiterated by

this Court in N.K. Wahi vs. Shekhar Singh and others,

(2007) 9 SCC 481, National Small Industries Corporation

Limited vs. Harmeet Singh Paintal and another, (2010) 3

SCC 330 and Pooja Ravinder Devidasani vs. State of

Maharashtra and another, (2014) 16 SCC 1.

32. Learned Additional Solicitor General placed reliance

on the judgment of this Court reported in N. Rangachari

vs. Bharat Sanchar Nigam Ltd., (2007) 5 SCC 108. This Court

in Rangachari was again considering the provisions of

Section 141 of the Negotiable Instruments Act, 1881.

Learned Additional Solicitor General relied on paragraphs

17 to 22. In N. Rangachari this Court has noticed the

earlier three-Judge judgment in S.M.S. Pharmaceuticals 30

Ltd.(supra) and clearly held that the said judgment is

binding. In paragraph 20 of N. Rangachari, this Court laid

down following:

“20. In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company Under Section 141 of the N.I. Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company.”

33. Thus, what was held in S.M.S. Pharmaceuticals

Ltd.(supra) has been reiterated by N. Rangachari. We may

also refer to paragraph 23 of the N. Rangachari judgment

where following has been laid down:

“23. In the light of the ratio in S.M.S. Pharmaceuticals Ltd. (2005) 8 SCC 89, what is to be looked into is whether in the complaint, in addition to asserting that the appellant and another are the Directors of the company, it is further alleged that they are in charge of and responsible to the company for the conduct of the business of the company. We find that such an allegation is clearly made in the complaint which we have quoted above. Learned Senior Counsel for the appellant argued that in Saroj Kumar Poddar case (2007) 3 SCC 693, this Court had found the complaint unsustainable only for the reason that there was no specific averment that at the time of issuance of the cheque that was dishonoured, the persons named in the complaint were in 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.” 31

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 in- charge of, and was 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. Only those persons who were in-charge of and responsible for the conduct of the business of the company at the time of commission of an offence will be liable for criminal action. It follows from the fact that if a Director of a Company who was not in-charge of and was not responsible for the conduct of the business of 32

the company at the relevant time, will not be liable for a criminal offence under the provisions. The liability arises from being in- charge of and responsible for the conduct of the 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.

13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the role of the Director. But the complaint should spell out as to how and in what manner Respondent No. 1 was in-charge of or was responsible to the accused company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability.”

36. In the above case, this Court held that Directors can

be prosecuted only if they were in-charge and responsible

for the conduct of the business of the company. In

paragraph 36, following has been laid down:-

“36. Section 291 of the Companies Act provides that

“291. General powers of Board.—(1) Subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorized to exercise and do.

A company, though a legal entity, can act only through its Board of Directors. The settled 33

position is that a Managing Director is prima facie in-charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other Directors are concerned, they can be prosecuted only if they were in-charge of and responsible 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 34

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.

38. We may notice that Section 141 of the Negotiable

Instruments Act, which was inserted in Negotiable

Instruments Act by amendment in the year 1988 contains the

same conditions for a person to be proceeded with and

punished for offence as contained in Section 68 of FERA,

1973. Section 141(1) of Negotiable Instruments Act uses

the same expression “every person, 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”. Section 68 of FERA, 1973 as well

as Section 141 of the Negotiable Instruments Act deals with

the offences by the companies in the same manner. The ratio

of the judgments of this Court on Section 141 of Negotiable

Instruments Act as noted above are also clearly relevant

while interpreting Section 68 of FERA Act. We, thus, hold

that for proceeding against a Director of a company for 35

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. This Court in S.M.S.

Pharmaceuticals Ltd. (supra) while elaborating the ambit

and scope of Section 141 of Negotiable Instruments Act has

already laid down above in paragraph 10 of the judgment as

extracted above.

39. It is true that with regard to any offence punishable

under Section 138 of Negotiable Instruments Act with

respect to offences by companies, a complaint in writing

has to be filed as required by Section 142 of the Negotiable

Instruments Act. A complaint as contemplated for offence

under Section 138 needs to be necessarily contain all

allegations constituting offence. 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 36

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 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 37

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.

41. Learned Additional Solicitor General also submitted

that all the three Courts have held and found contravention

proved by the appellant, this Court may not interfere with

such conclusion. We have already noticed above that the

plea of the appellant that he was part-time, non-executive

Director not in charge of the conduct of business of the

Company at the relevant time was erroneously discarded by

the authorities and the High Court and there is no finding

by any of the authorities after considering the material

that it was the appellant who was responsible for the

conduct of business of the Company at the relevant time.

Thus, present is a case where the liability has been

fastened on the appellant without there being necessary

basis for any such conclusion.

38

42. It is also relevant to notice that 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 part-time, 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 non-

executive 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, i.e., MXL.

43. In view of the foregoing discussions, we are of the

view that 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.

39

44. In view of the aforesaid, this appeal deserves to be

allowed, the judgments of the High Court as well as those

of the adjudicating officer and the Appellate Tribunal are

set aside. The appeal is allowed and the penalty imposed

on the appellant is set aside.

.............................J. ( ASHOK BHUSHAN )

.............................J. ( R. SUBHASH REDDY )

NEW DELHI, JULY 27, 2020.