APPELLATE TRIBUNAL FOR FOREIGN EXCHANGE (FROM NEW DELHI)

Appeal

3 of 2011

PANKAJ GUPTA - Complainant(s)

Versus

ENFORCEMENT DIRECTORATE - Opp.Party(s)

BEFORE: Vinay Kumar Mathur, H K Mudgil

Ratnil Chauhan, Natasha Sarkar

27 Jul 2016

ORDER

Vinay Kumar Mathur, J.

[1] We have heard Shri Ratnil Chauhan, Advocate, ld. counsel for the appellant and Ms. Natasha Sarkar, ld. legal consultant for the respondent, Enforcement Directorate and have carefully perused the records. Brief facts relevant for the disposal of the appeal are that M/s. Sashak Noble Metals Ltd. had exported goods abroad but had failed to take necessary steps to realize the export proceeds within the stipulated period in contravention of provision of Section 8 of FEMA, 1999 r/w. Regulations 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. The appellant and co-noticees R.K.T. Das, Ravindra B. Wadher, Rais Ahmed, K.K. Vijayvergiya and Yezdi H. Khambatta were charged for the said contraventions in terms of Section 42 of FEMA, 1999.

[2] Investigations were initiated on the basis of information received from RBI regarding non-realization of export bills by M/s. Sashak Noble Metals Ltd. and its sister companies which were negotiated through different banks. As the Managing Director failed to respond to the summons, the required information was collected from the authorized dealers Bank of Punjab which submitted copies of opening GRs in respect of M/s. Sashak Noble Metals Ltd. vide their letter dated 23-2-2005. Co-noticee Rais Ahmed, Managing Director was summoned and his statement under Section 37 of FEMA was recorded on 15-4-2004 who stated that the company was put in caution list of RBI for non-realization of export proceeds and the company had taken extension up to 31-12-2001 but did not apply thereafter for further extension. Total outstanding amount in respect of 6 GRs was disclosed to be 5117000 US$.

[3] The company vide its letter dated 21-6-2004 stated that it had made efforts to realize the outstanding dues and has also filed civil suits in Hon'ble Bombay High Court and London Court but could not furnish documentary evidence in support of their claim. It is contended that Rais Ahmed in his statement named all the co-noticees who were directors at the relevant time. The amount of 5117000 US$ was equivalent to Rs. 23,02,65,000/- which the co-noticees had failed to repatriate, therefore, it was alleged that they had contravened provisions of Section 8 of FEMA, 1999 r/w. Regulation 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000. As no reply of the SCN was received the Special Director decided to proceed with the Adjudication and call notices for personal hearing were issued. The company, co-noticees Rais Ahmed, R.K.T. Das, Ravindra B. Wadher and Yezdi B. Khambatta only filed replies while no reply on behalf of the appellant was filed. None of the noticees appeared before the Adjudicating Authority. In this view of the matter he held ex parte proceedings and on the basis of available evidences concluded that the noticee company has failed to realize the export proceeds in respect of 6 GRs negotiated through the Bank of Punjab Ltd. He also held that the noticee company is one of the company in group of export companies managed by Rais Ahmed (co-noticee) and others and huge amount of export proceeds are outstanding to the entire group as accepted by them in their reply to SCN. He also recorded that RBI has refused further extension as it was felt that noticee was not making sincere efforts to realize the proceeds and, therefore, RBI had put them under caution. The Adjudicating Authority also observed that the writ petition against the foreign buyer was filed before the Hon'ble Bombay High Court so that it could be conveniently withdrawn. The Adjudicating Authority held that the noticees had failed to make sincere efforts and could not produce any decree from the London Court. Therefore, in view of the above he held the noticees guilty for contraventions of the provisions of Section 8 of FEMA, 1999 r/w. Regulations 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and imposed a penalty of Rs. 1,70,00,000/- against the company M/s. Sashak Noble Metals Ltd. and a penalty of Rs. 17,00,000/- each against all the noticees including the appellant.

[4] Aggrieved from the impugned order the present appeal has been filed by the appellant.

[5] It has been contended by the ld. counsel for the appellant that the appellant is an engineer and possesses B-Tech Mechanical Engineering degree and was employed with M/s. Sahara Industrial Services Pvt. Ltd. which used to provide manpower assistance to various projects, conceived by the group companies Geekay Exim India Ltd. including Sashak Noble Metals Ltd. Further submission is that around 1999, the company planned to set up a gold refinery at Pithampur, Indore and the appellant was assigned the task of setting up the project due to his engineering background. There were certain liabilities on the land acquired by the company and every department required letters from the directors of the company, therefore, with a view to cut the cost of frequent travel of the appellant to and from Indore to Bombay and for convenience sake the appellant was made a non-executive independent director so that he could sign the required necessary papers. Submission is that the appellant was appointed non-executive independent director of the company for Indore project only in the year 2000. Ld. counsel for the appellant has further contended that due to some unknown reasons the project could not start and was shelved. The appellant had nothing to do with the affairs of the company at headquarter and his role was limited to setting up of the project at Indore. The appellant was not involved in any way in the activities of exports by the company and had never remained in-charge or responsible to the company for the conduct of business and had no knowledge of any transaction in dispute. Further submission is that the appellant never attended any Board meetings of the company and resigned from Sahara industrial Services Pvt. Ltd. by the year 2000-01.

[6] It has been submitted by the ld. counsel for the appellant that on 10-10-2005 almost five years after the appellant left the company, the SCN was allegedly issued to the company and all its directors on the basis of a complaint dated 30-9-2005. However, the appellant had no knowledge about the SCN and the proceedings were initiated by the Adjudicating Authority against the company and its directors. Neither the respondent nor the company served copy of the impugned order upon the appellant nor any information was given to him in this regard. It was only when the appellant's brother Samir Gupta visited the office of the Director of Enforcement Directorate in connection with another SCN in Geekay Exim matter, he learnt about the impugned order and applied for certified copy on 7-7-2010. The original copy was supplied by the office of the Enforcement Directorate on 29-11-2010 which is a proof of the fact that the impugned order was never served upon the appellant and the proceedings were held behind the back of the appellant without any information having been given to him. Submission is that the appellant's brother Samir Gupta along with his counsel in Geekay Exim matter appeared on 22-10-2010 before the Enforcement Directorate and submitted a detailed reply and based on the said reply the ED passed order dated 28-10-2010 by which said Samir Gupta was exonerated of all the charges. Submission is that the impugned order is erroneous and has been passed in gross violation of the principles of natural justice. No SCN or copy of the impugned order was served upon the appellant and he was deprived of his valuable right to be heard and defend. The non-executive director has no role to play in day to day management of the company. The appellant was neither a shareholder nor drew any remuneration from the company. He had no knowledge of day to day business carried out at Bombay and was not involved in any export or in any of the transactions under dispute. The appellant cannot be held vicariously liable under Section 42 of FEMA for the alleged contraventions committed by the company. The Adjudicating Authority has also recorded categorical findings that the Managing Director and co-noticee Rais Ahmed was managing day to day affairs of the company which included the disputed transactions. Further submission is that the appellant resigned before the end of the extended time by RBI for realization, in December, 2010 from his employer Sahara Industrial Services Pvt. Ltd., therefore, also no liability could have been fastened against him. Submission is that though legal action was initiated in Hon'ble Bombay High Court against the buyers but in view of the assurance of the buyers in several meetings held with them to make payments, the legal proceedings were not pursued. However, payments could not be made due to liquidation issues with the buyers. Reliance has been placed on the judgments in Girdhari Lal Gupta v. DM. Mehta and Another, 1971 3 SCC 189, Sudeep Jain v. ECE Industries Ltd., , HDFC Bank Ltd. v. Amit Kumar Singh, 2009 160 DLT 478, C.D. Sharma v. Union of India and Ors., 2013 4 ILR(Del) 2582, Soma Chakravarty v. State through CBI, 2007 5 SCC 403, Natwar Singh v. Directorate of Enforcement and National Small Industries Corporation Ltd. v. Harmeet Singh Paintal and Another, 2010 3 SCC 330.

[7] Ms. Natasha Sarkar, legal consultant has defended the impugned order and has submitted that the SCN was duly issued to the appellant and notice for personal hearing was also dispatched. The appellant had full knowledge of the proceedings but deliberately avoided the proceedings, therefore, he cannot claim any benefit by stating that SCN was not served or he had no knowledge of the proceedings. Submission is that the appellant was director and as such was liable for the business activities of the company. No proof has been filed to substantiate the plea that the appellant was appointed director only to look after the establishment at Indore. There is no specific evidence in support of the contention that the appellant was a non-executive director and had no concern with the routine business activities of the company. The case laws relied upon are inapplicable as the impugned order is a reasoned just and a speaking order. The grounds of appeal are not tenable and the appeal deserves to be dismissed.

[8] The appellant has contended that he is a qualified engineer and was serving with Sahara Industrial Services Pvt. Ltd. which used to provide manpower assistance to various projects conceived by the group companies of Geekay Exim India Ltd. including Sashak Noble Metals Ltd., registered office of which is located in Fort, Mumbai. The copies of Form-16 for the assessment year 2000-01 show that the appellant was an employee of Sahara Industrial Services Pvt. Ltd. and his designation was project manager. The pay slip filed by the appellant for the months of February, 1998, March, 1998, July, 1999 and August, 1999 show that the employer of the appellant was Sahara Industrial Services Pvt. Ltd. The respondent has not disputed that the appellant was basically the employee of Sahara Industrial Services Pvt. Ltd.

[9] The contention of the appellant is also that around 1999 M/s. Geekay Exim India Ltd. including Sashak Noble Metal Ltd. planned to set up gold refinery at Pithampur, Indore and the appellant due to his engineering background was deputed to set up the project. It is also clear from the perusal of the impugned order that the co-noticee Rais Ahmed was the Managing Director of the company whose statement under Section 37 of FEMA, 1999 was recorded on 15-4-2004 and the company Sashak Noble Metals Ltd. was put in caution list for non-realization of export proceeds. However, the company had taken extension up to 31-12-2001 from RBI and thereafter the company had not applied for any further extension.

[10] It has not come in the impugned order that service of the SCN was effected upon the appellant. No statement of the appellant under Section 37 of FEMA, 1999 was recorded. It has only come in the statement of co-noticee Rais Ahmed dated 3-8-2005 that the appellant was a director along with others during the relevant period, when the goods valued at US $ 5117000 equivalent to Rs. 23,02,65,000/- were exported through 6 GR forms in between 27-7-2000 to 10-8-2000 and Bank of Punjab Ltd. was the authorized dealer of the company. It has also come that the replies were filed before the Adjudicating Authority on behalf of Sashak Noble Metals Ltd., Rais Ahmed, R.K.T. Das, Ravindra B. Wadhwar and Yezdi H. Khambatta on 12-3-2007 giving the details of the efforts made for the repatriation of the export proceeds. It was contended that after personal meetings the buyer agreed to sign the MOU and undertook to remit the payments of the outstanding export proceeds and some payments were remitted but they failed to pay the total amount due and in consideration of the efforts, the RBI extended the time for realization of the outstanding export proceeds. The extension was provided up to 31-12-2001. The legal action was taken against the buyer before Hon'ble Bombay High Court and the copies were submitted to RBI. It was also contended that the foreign buyers have never denied their liability and gave reasons for non-payment as liquidity problems at their end resulting from global recession and curtailments of business activities. In the replies it has also been contended that the legal suits were also filed in various courts in London and the proceedings before the Hon'ble Bombay High Court were withdrawn. The noticees had made genuine efforts for realization of the outstanding dues but due to reasons beyond their control they could not repatriate the sale proceeds.

[11] In the impugned order it has come that when the matter was posted for personal hearing before the earlier Adjudicating Authority on several occasions the noticees requested for adjournment and call notices were issued thereafter which were accepted, however no one appeared before the Adjudicating Authority, therefore, the Adjudicating Authority proceeded ex parte against the noticees. It is pertinent to mention that it has not come clearly whether any notice to the appellant was also served upon him or not. The findings of the Adjudicating Authority are cryptic and it has been inferred that the noticees had not approached to seek assistance of the Embassy/Consulate abroad in the matter and thus apparently were not interested in pursuing the matter earnestly as directed by the RBI. The entire findings are based upon inferences drawn by the Adjudicating Authority without required corroboration from any oral or documentary evidence. In paragraph 14 of the impugned order the Adjudicating Authority naming all the directors has concluded that all the directors of the company were the persons incharge for the conduct of the business of the company during the relevant period and were as such responsible for the aforesaid transactions and cannot escape their responsibility.

[12] It has been categorically stated by the appellant that after he was assigned the task to set up the proposed project it was found that there were certain liabilities on the land acquired by the company and every department with which dealing had to be made for the clearance of the project required letters from the directors and with a view to cut the cost of the frequent visits of the appellant to visit Bombay the appellant was made a non-executive director so that he could sign the required papers and he was appointed a non-executive independent director of the company for the Indore project only. It has also been contended that the project could not start and was given up and the appellant had no role with the exports of the company or realization of the export proceeds and the appellant was not involved in the activities, in any way. He had never remained incharge or responsible for the conduct of business and had also not attended any board meetings and resigned from Sahara Industrial Services Pvt. Ltd. by the year 2000-01. He has also contended that after 5 years of leaving the company the SCN was allegedly issued to the company and its directors on the basis of the complaint dated 30-9-2005. The appellant could not get any information about the SCN and the proceedings. Copy of the impugned order was not sent to him either by the company or by the Adjudicating Authority. He learnt about the impugned order when his brother Samir Gupta visited the office of the Director, Enforcement Directorate in connection with another SCN in Geekay Exim India Ltd. matter. Thereafter he applied for the certified copy on 7-10-2010 and the original copy was supplied to him by the Enforcement Directorate on 29-11-2010 which is a proof of the fact that the impugned order was not communicated to him. His brother was exonerated in the other matter on the basis of reply on almost identical grounds as have been taken by the appellant in the memo of appeal of the present appeal. It is clear from the perusal of the record that the SCN was issued on 10-10-2005 and the address of all the noticees including the company has been shown to be Rahimtola House, Homji Street, Fort, Mumbai while in the complaint dated 30-9-2005 the address given is different. Copies of application for obtaining certified copy dated 7-10-2010 on behalf of the appellant has been filed along with the photocopy of the original Adjudication Order. Supply of the copy of the original order to the appellant meant to be sent to him in 2010 implies that the original order had not been served upon to the appellant.

[13] In Sudeep Jain v. M/s. ECE Industries Ltd. (supra) relied upon by the appellant in Paragraph 6 while dealing the case under Negotiable Instruments Act, 1881 the Hon'ble Delhi High Court has referred to the judgment of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, 2005 7 SCALE 397 and has quoted paragraph 16 of Hon'ble Supreme Court wherein it has been held that it is necessary to specifically aver in a complaint under Section 141 that at the time when offence was committed the person accused was incharge and responsible for the conduct of the business of the company. In paragraph (b) the Hon'ble Supreme Court has held that merely being a director of the company is not sufficient to make the person liable. In para (C) it has been held that Managing Director or Joint Managing Director would be admittedly incharge of the company. In para 7 of the judgment the Hon'ble Delhi High Court has discussed the judgment of Hon'ble Supreme Court in National Small Industries Corporation Ltd. v. Harmeet Singh Paintal, 2010 2 SCALE 372 which also emphasizes that it is necessary to aver that the present accused falls under the category of persons who are responsible to the company for the conduct of business. The provision of Section 141 is pari materia to Section 42 of FEMA, 1999 regarding liability of the directors.

[14] In Nativar Singh v. Director of Enforcement (supra) the Hon'ble Supreme Court in paras 23, 26, 30, 31 and 34 while dealing the case under FEMA, 1999 and also Regulations, 2000 has discussed the obligation of the principles of natural justice and has held that non-adherence to them may result in holding the order void. Much emphasis has been laid upon the doctrine of audi alteram partem i.e. right of the other party to be heard. In Girdhari Lal Gupta v. D.H. Mehta and Another (supra) the Hon'ble Supreme Court has laid down that the criminal liability can be fastened only against the person incharge. In National Small Industries Corporation Ltd. v. Harmeet Singh Paintal and Another (supra) the Hon'ble Supreme Court has dealt with the vicarious liability of the director and has held that to rope in any person it must be pleaded and proved and not inferred, that he was the person responsible for the conduct of the business. In the judgment of HDFC Bank Limited v. Amit Kumar Singh (supra) the Hon'ble Delhi High Court has dealt with the aspect of service of notice and found there was no proof of delivery of process and it is necessary to establish that service was duly effected.

[15] In the above back drop we are of the view that the respondent has failed to prove the service of either SCN or notice for personal hearing or the service of impugned order upon the appellant. The appellant has taken a specific plea that he had resigned much prior to initiation of the Adjudication Proceedings and was non-executive director and was not involved in any activity relating to export or day to day affairs of the company and had been made non-executive director for the Indore project only for saving expenditure and convenience in seeking clearance from various departments. It is established that the services of the appellant were lent to the company M/s. Sashak Noble Metals Ltd. by its employee Sahara Industrial Services Pvt. Ltd. The ex parte order is non-speaking without reasons and violative of the principles of natural justice and the liability has been fastened arbitrarily against the appellant, who appears to have no concern with the business activities of the company relating to disputed transactions and was looking after the Indore project only. No evidence to prove that the appellant was in any way associated with the incharge Managing Director or Director for exports or his role is available and no such allegation specifically has been imputed. The Adjudication Order is improper, unjust and based on surmises and is not sustainable and is liable to be set aside. The appeal has merits and deserves to be allowed.

[16] The appeal is allowed and the impugned adjudication order is set aside. The amount of pre-deposit if any shall be refunded by the respondent after the expiry of period of limitation for filing appeal. No order as to costs. The Registrar is directed to send copies of this order to the appellants and the respondents.

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