Case Note & Summary
The appeal arose from a penalty imposed on the appellant, a part-time non-executive director of Modi Xerox Ltd., for alleged contravention of the Foreign Exchange Regulation Act, 1973 (FERA) concerning remittances made by the company between 1985 and 1985. The Enforcement Directorate issued a show cause notice in 2001 to the company and its directors, including the appellant, under Section 51 of FERA. The appellant replied in 2003, asserting he was a practicing advocate and only a part-time, non-executive director, not in charge of the company's business, supported by an affidavit from the company secretary. The Deputy Director imposed a penalty of Rs. 1,00,000 on the appellant under Sections 8(3), 8(4), and 68 of FERA in 2004. The Appellate Tribunal for Foreign Exchange and the Delhi High Court upheld this penalty, dismissing the appellant's appeals, with the High Court labeling his plea as an afterthought. The Supreme Court considered whether the appellant could be held liable without specific findings that he was responsible for the company's business at the relevant time. The appellant argued that no material established his involvement, while the respondent contended that as a director, he bore the burden to disprove allegations. The Court analyzed the show cause notice and replies, noting that the notice required directors to show cause but did not specifically allege the appellant's responsibility. It held that under FERA, liability of directors requires a specific finding that they were in charge of and responsible for the conduct of business, which was absent here. The Court found that the authorities erred in imposing penalty based merely on directorship without such findings, and set aside the penalty, allowing the appeal.
Headnote
A) Foreign Exchange Law - Director Liability - Vicarious Liability Under FERA, 1973 - Foreign Exchange Regulation Act, 1973, Sections 8(3), 8(4), 68, 51 - Appellant, a part-time non-executive director, challenged penalty imposed for contravention of FERA provisions related to remittances by company - Supreme Court held that liability under FERA requires specific finding that director was in charge of and responsible for conduct of business at relevant time, mere directorship insufficient - Court set aside penalty as no such finding recorded by authorities (Paras 9, 10, 11, 12, 13). B) Foreign Exchange Law - Adjudication Proceedings - Burden of Proof in FERA Proceedings - Foreign Exchange Regulation Act, 1973, Section 51 - Dispute regarding whether appellant's plea of being part-time director was afterthought and whether he proved non-involvement - Court held that show cause notice itself required directors to show cause, and appellant's detailed reply with affidavit sufficiently raised the plea - Authorities erred in imposing penalty without specific material establishing his responsibility (Paras 9, 10, 11, 12).
Issue of Consideration
Whether the appellant, a part-time non-executive director, could be held liable for contravention of Section 8(3), 8(4) and Section 68 of FERA, 1973 without specific material and findings that he was in charge of and responsible for the conduct of business of the company at the relevant time
Final Decision
Supreme Court allowed the appeal, set aside the penalty imposed on the appellant
Law Points
- Liability of directors under FERA requires specific finding of being in charge of and responsible for conduct of business
- mere directorship not sufficient
- burden of proof in adjudication proceedings under Section 51 FERA
- 1973
- principles of vicarious liability in corporate offences
