APPELLATE TRIBUNAL FOR FOREIGN EXCHANGE (FROM NEW DELHI)

Revision Petition

8 of 2009

DIRECTORATE OF ENFORCEMENT - Complainant(s)

Versus

KAPIL MOHAN - Opp.Party(s)

BEFORE: Vinay Kumar Mathur, H K Mudgil

Mohmd Farid, S K Kochar

09 Sep 2016

ORDER

Vinay Kumar Mathur, J.

[1] We have heard arguments of Sh. Mohd. Fareed, ALA for the Revisionist and Mr. S.K. Kocchar, Advocate representing respondents No. 1, 2, 3 and 6. Proceedings against respondents 4, 5, 7 and 8 were held ex parte as despite service, the respondents failed to appear. Brief facts relevant for the disposal of the instant revision petition are that on the basis of information collected from SBI, Kandla Free Zone Branch-Kutch regarding outstanding export proceeds to the tune of Rs. 9,84,180/- against M/s. Mohan Carpets (India) Ltd. as on 31st March, 1991 investigations were initiated by Ahmedabad Office of Enforcement Directorate on 12-2-1993. Enquiries with the bankers, State Bank of India - Kandla, Kutch Branch revealed that an amount of Rs. 16,1,065/- under two GR Nos. 013890, dated 27-8-1983 and Gr. No. 414797, dated 2nd March, 1984 were pending realisation. During investigation Sh. R.K. Dikshit, Authorised Signatory of the company stated that M/s. Mohan Carpets had exported two consignments one to M/s. Harrison and Berdsley U.K. on 14-9-1993 for 32,000 pounds and other to M/s. Indecoration, Paris, France on 16-2-1984 for F.F. 1,57,625/- and an amount of 2000 pounds had been remitted in respect of the former transaction. It is also stated that the company has many directors on its Board, but Sh. Rohit Sahu was the director in charge responsible for the total operations of the company including production and marketing and he committed a fraud by collecting the export proceeds outside India and retaining the same in U.K. in some other company's accounts in collusion with that company, namely M/s. Gleebjay Ltd. U.K. in which he him-self was a partner. It is also stated that a suit was filed in High Court of Justice, Queens Bench Division, London in 1985 in this respect and Amnesty was granted by RBI under Amnesty Scheme. The fees of the Solicitors in U.K. could not be paid and the company incurred heavy losses owing to withdrawal of export orders by USSR and became sick and approached BIFR. It is also contended that during the course of enquiry, statement of Sh. Rakesh Mohan was recorded on 24-9-1998 wherein he stated that the company was declared sick by BIFR and part of export proceeds to the tune of 81,459.76 pounds and FF 1,63,201.68 in respect of 5 consignments were remained. In respect of 4 consignments Sh. Rohit Sahu, Executive Director of the company is stated to be directly responsible for the operations of the company vide letter dated 31-10-1998. The company forwarded a copy of RBI's letter granting Amnesty for the outstanding payments of 70,871 pounds and FF 1,63,201.68. Vide letter dated 25-9-2000 Bank of India, Mumbai confirmed that a amount of US $ 1,0,588.76, out of total amount of US$40,069.26 from M/s. Taftbrook Ltd., London still remained unrealized. While the enquiry was underway, information was received by Enforcement Directorate Headquarters in September, 2000 to the effect that the company had deliberately retained export proceeds abroad through Sh. Rakesh Mohan and a bogus case was filed against Sh. Rohit Sahu in U.K. It was also informed that exports in U.K. were under-invoiced creating a margin of 2 pounds which was retained abroad for personal expenses by Sh. Rakesh Mohan including the educational expenses of his sons and similar margins were retained abroad through M/s. Sterling Westminister Inter-continental Ltd., London in some exports made to Germany by M/s. Mohan Meakins Ltd. and some of the foreign funds retained abroad had been routed back to Mohan Carpets in the form of deposits. It was also informed that investment of 1,00,000 pounds in the year 1985 in M/s. Mohan Carpets were made by M/s. Campofina Anstalt, Leichtenstein without the permission of RBI. There were allegations of sale of immovable property in U.K. by Sh. Rakesh Mohan and also regarding maintaining bank accounts in U.K. in his name and in the name of his wife. Statements of the witnesses were recorded. It is contended that Brigadier Kapil Mohan, B.D. Bali, Rakesh Mohan, Comilla Mohan, J.J. Choksey, R.D. Mohan, Jaywant Singh, Rohit Sahu, Rakesh Khosla & Somesh Kapahi were directors of the company. It was also found that RBI had not granted permission for receiving advance payments against export orders for 1,00,000 Sterling Pounds from overseas agents.

[2] On conclusion of the investigation Memorandum dated 19th March, 2002 was issued to M/s. Mohan Carpets and its directors for having contravened the provisions of Sections 18(2) and 18(3) read with Section 68 of FERA, 1973 and also read with Central Government Notification No. F-1667/EC/73/1&3 both dated 1-1-1971. Two other show cause notices were issued to M/s. Mohan Carpets and its Directors for having contravened Sections 9(1)(C), 8(1) and Section 25 FERA, 1973 for acquiring, transferring the Foreign Exchange and acquiring immovable property in London. One show cause notice dated 20-11-2001 was decided by the Adjudicating Authority wherein penalties were imposed against the noticees.

[3] In response to the show cause notice dated 19-3-2002 replies were filed on behalf of Rakesh Mohan and Mrs. Comilla Mohan challenging the competence of the authority to issue show cause notice and contending that at the relevant time the noticees were not in-charge and responsible for the business. Sh. R.D. Mohan vide his reply stated that he was under employment from 1973-84 as Manager and Executive Director of Mohan Rockey Springwater Breweries Ltd. Khopali, Maharashtra and M/s. Mohan Carpets Ltd. was managed by whole time directors under the guidance of the Chairman of the Board. Brigadier Kapil Mohan stated that he had appointed Sh. S.K. Kochhar as his authorized representative to reply to the Memorandum and inspect the documents.

[4] Jaywant Singh denied his involvement and stated that he was not a working Director. B.D. Bali stated that he had resigned as the Director of the company some time in 1988-89 and during his association with the company he was not working as Director and did not attend any board meeting. J.J. Choksey informed that he was appointed by Gujarat State Finance Corporation (GSFC) as their Nominee Director on board of M/s. Mohan Carpets (I) Ltd. as per the condition imposed by the GSFC while granting accommodation to the above company.

[5] The Adjudicating Authority after considering the replies of the noticees decided to hold Adjudication Proceedings and call notice was issued. During the adjudication proceedings Sh. S.K. Kocchar appeared on behalf of respondent Brigadier Kapil Mohan and stated that his client has resigned from the company in 1988 and was therefore not aware of any of the transactions mentioned in the Memorandum. Sh. B.D. Bali was also represented through a counsel and it was contended that he had also resigned as Director in 1988-89. Sh. Jay-want Singh stated that he was not a Working Director of the company and was not involved in the actual running of the affairs and management of the company. The company was granted Amnesty by RBI in 1987-89 and he has ceased to be a Director in 1986.

[6] Call notice was also issued to the Official Liquidator. The Adjudicating Authority on the basis of evidence available and the replies of denial by the noticees found that the company M/s. Mohan Carpets had exported goods worth 81,459.76 pounds and F.F. 1,72,834.78 and the export proceeds were yet to be brought back to the country. The Amnesty granted by the RBI to the company was subject to realization of the export proceeds and the Amnesty granted by RBI was against failure to repatriate the export proceeds within six months and RBI had no intention to waive the realization of the export proceeds. The Adjudicating Authority was of the view that the conduct of the notice company and its directors had not been above board since the beginning and Sh. Rakesh Mohan in his statement recorded on 20-2-2001 had admitted that the exported goods of the notice company were actually bought by some other importer namely M/s. MEVCARDO U.K. other than the importer on paper at a much higher price than the export price shown by the noticee company. He also found that the export proceeds remained unrealized even after more than 15 years and there are allegations against the Director, Sh. Rakesh Mohan about the misappropriation of the company funds. Other group companies also seemed to be involved in foreign exchange violations. He also concluded on the basis of statement of Sh. R.K. Dixit, General Manager that the export proceeds were actually realized in U.K. by Sh. Rohit Sahu the then Executive Director of the Noticee Company in connivance and with active support of Sh. Rakesh Mohan. The misappropriation of export proceeds by Sh. Rohit Sahu was admitted by Sh. Rakesh Mohan. However, Sh. Rakesh Mohan has stated that Sh. Rohit Sahu did it alone without his support or knowledge. But the Adjudicating Authority was of the view that the sequence of events indicates contrary what Sh. Rakesh Mohan as stated. He also recorded that no attempt was made by the notice company or its directors to bring back export proceeds to the country causing loss of revenue and loss of foreign exchange to the country. The details of export proceeds which remained unrealized were shown in Annexure-A to the Memorandum. The Adjudicating Authority held the notice company Rakesh Mohan and Rohit Sahu guilty of violating Section 18(2) of FERA, 1973 read with relevant Central Government Notification dated 1-1-1974 and also of Section 18(3) of FERA, 1973 and consequently imposed penalty of Rs. 50 lakhs each on the Noticee Company, M/s. Mohan Carpels (I) Ltd. and Sh. Rakesh Mohan and Sh. Rohit Sahu. He also held that rest of the Directors were not involved in day to day function of the noticee company at the relevant point of time and therefore, no penalty was imposed against them.

[7] Aggrieved from the impugned Adjudication Order No. DD(PK)/3/DZ/2007/620, dated 28-9-2007, the instant Revision Petition under Section 19(6) of FEMA, 1999 has been filed by the Enforcement Directorate.

[8] It has been contended on behalf of the revisionist that the impugned order is bad in law and facts and circumstances. It has also been contended that the Adjudicating Authority has caused serious illegality by not holding Noticee Nos. 2, 3, 5, 7, 8, 10 and 11 guilty under Sections 18(2) and 18(3) read with Section 58 of FERA, 1973 as they were also associated with the exports in the capacity of Directors and were in-charge and were responsible at the relevant time when the contraventions took place. Further submission is that respondents have failed to explain as to why the export value to the tune of 81,459.76 pounds and FF 172834.78 could not realized within the prescribed period in the prescribed manner. It has also been contended that the impugned order has been passed on the basis of extraneous material. Further submission is that the respondents made attempts to wriggle out of the proceedings by giving false evidence/excuses which did not merit consideration at all. Mere denial has no meaning and no evidence was produced/furnished by the respondents. The matter of the respondents is covered under Section 68(1) of FERA, 1973. The entire defence evidence was an afterthought and was given at a belated stage. The conclusions arrived at in the impugned order are perverse and contrary of all norms and judicial process therefore, it has been prayed that revision may be allowed and the impugned order may be accordingly amended/modified by passing necessary orders for holding the respondents guilty and imposition of penalty against the noticees 2, 3, 5, 6, 7, 8, 10 and 11 who were also in-charge and responsible for the contravention committed by the offender company.

[9] Sh. S.K. Kochhar, Advocate representing respondents 1, 2, 3 and 6 has submitted that the instant revision petition has been filed on 7-1-2009 against the Adjudication Order dated 28-9-2007 under Sec. 19(6) of FEMA, 1999. Submission is that the principle attack to the Adjudication Order is that all the directors, the respondents herein were also in-charge and were responsible to the company at the relevant time of commission of alleged contraventions. The revisionist has mainly relied upon Section 68 of the FERA, 1973. The burden rests on the Enforcement Directorate to establish beyond doubt that every person who at the time of commitment of contravention, was in-charge or was responsible for the company for conduct of business of the company. 'There is not an iota of evidence against the respondents to the effect that all or any of them were in any way responsible or liable for the exports or for the realization of the proceeds. Submission is that show cause notice was issued on 19-3-2002 to the company and to its Directors. Para 7 of the notice contains the bald and unsubstantiated reference against all the directors without stating a word about their specific involvement in the affairs of the company or its activities. It has been contended that no document was produced by the Enforcement Directorate to prove allegations against any of the respondent Directors. Further submission is that the impugned order has been rightly passed after appreciating and discussing in detail the submission of the respondents therein and it has been clearly stated in 3rd paragraph at page 17 of the Adjudication Order and decisive finding has been recorded holding that respondents were not involved in day to day affairs of the company at the relevant time. The revisionist has miserably failed to make any specific allegation or to produce any reliable evidence regarding involvement of the respondents. Submission is that the instant revision petition is an abuse of process of law, reliance has been place on the judgment of Hon'ble Delhi High Court in Criminal Appeal No. 568 of 2008 - Umesh K. Modi v. Deputy Director of Enforcement Directorate dated 31-7-2014 and judgment of the Hon'ble Supreme Court in National Small Industries v. Harmeet Singh Paintel and Another dated 15-2-2010 in Criminal Appeal Nos. 320 to 336 of 2010.

[10] We have considered the submissions of ld. Legal Consultants as well as ld. Counsel for the contesting respondents in National Small Industries v. Harmeet Singh Paintal & Anr. (supra), Hon'ble Supreme Court while dealing with matter under Negotiable Instruments Act has laid down certain principles emphasizing that the primary responsibility is on the complaint to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability there is no presumption, the Hon'ble Court has further held that Section 141 (NI Act) does not make all the directors liable for the offence. The criminal liability can be fastened only those who at the time of the commission of the offence were in charge and were responsible for the conduct of the business of the company. It has been further held that vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be afforded in the complain with petition, are make so as to make the accused therein vicariously liable for offence committed by the company. It has also laid down that vicarious liability on the part of a person must be pleaded and proved and not inferred. It has been held that if the accused is the Managing Director or Joint Managing Director of the company, then it is not necessary to make specific averments in the complaint and by virtue of their position they are liable to be proceeded. The judgment of the National Small Industries v. Harminder Singh has been followed in Umesh K. Modi v. Deputy Enforcement by Hon'ble Supreme Court in its order dated 31-7-2014 also relied upon by ld. Counsel for respondents.

[11] In Puja Ravinder Devdasani v. State of Maharashtra and Anr., 2014 16 SCC 1, the Hon'ble Supreme Court in Para 17 of the judgment has held that Non-Executive Director is no doubt a custodian of the governance of the Company but is not involved in day-to-day affairs of the running of its business and only monitors the executive activity. Similarly Bhupender V. Singh v. UOI in Para 22 of the judgment, the Hon'ble Delhi High Court has held that Section 42(1) of FEMA extends liability by a deeming fiction only to such directors who were at the relevant point in time in-charge and he were responsible to the company for the conduct of its business.

[12] In view of the above settled legal position and taking into account the fact that no evidence has been lead by the Enforcement Directorate in the Adjudication Proceedings to the effect that the respondents were in-charge and were responsible for the conduct of the business of the company. Vicarious liability as has been held by the Hon'ble Supreme Court can only be inferred against the company for the requisite statements in the complaint are made so as to make accused therein vicariously liable for offence committed by company along with averments in a petition contending that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. No vicarious liability on the part of the respondents herein has been pleaded and proved, therefore, vicarious liability cannot be inferred ipso facto by the Adjudicating Authority. We do not find any latent or patent illegality, irregularity or infirmity in the Adjudication Order. The Revision in our opinion has no merits and is liable to be dismissed. Revision petition is dismissed. Parties shall bear their own costs. Copies of the judgment be sent to both the parties.

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