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APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
SHRI G. C. MISHRA, ACJ
Shri Sebastian Chokkattu – Appellant
Versus
The Special Director Directorate of Enforcement, Chennai – Respondent
FPA-FE-604/CHN/2003|FPA-FE-603/CHN/2003|FPA-FE-657/CHN/2003|FPA-FE-555/CHN/2003
For the Appellant No(s). 1 to 4 :Mr. Wills Mathews, Advocate
For the Respondent (ED): Mr. Rajesh Ridla, Assistant Legal Adviser, Ms. Ankita, Legal Consultant
Directors can only be penalized for contraventions of foreign exchange laws if involved in day-to-day operations during the violation period, upholding accountability principles.
Headnote:(A) Foreign Exchange Regulation Act, 1973 - Sections 8(3), 8(4), 18(2), 18(3) and 68 - Penalties imposed on directors and companies for failure to realize export proceeds amounting to US $ 16,12,630.04 due to quality disputes and management issues - Legal obligations under Exchange Control Manual not fulfilled - Appeals filed challenging penalties. (Paras 1, 31-34, 60-78)
(B) Corporate Responsibility - Directors not managing day-to-day operations not held liable for contraventions. (Paras 60-78)
(C) Legal Principles - A director in a corporation can only be penalized for breaches if they had direct involvement or knowledge of the violations. Appeals dismissed in part with penalties for some directors quashed. (Paras 72-78)
Facts of the case:
The appellants, associated with several companies, were charged with violating provisions of the Foreign Exchange Regulation Act regarding non-realization of export proceeds. Factors included management decisions, external quality claims, and internal productivity challenges.
Findings of Court:
Court confirmed penalties against directors involved in management during the contraventions, quashed penalties against those who were not directly responsible.
Issues: The main issues raised were the liability of directors for failures occurring prior to their tenure and the sufficiency of actions taken to recover debts.
Ratio Decidendi: The court stated that without direct evidence of knowledge or action, directors cannot be held accountable for decisions made by their predecessors.
Result: Appeals disposed of; penalty on some directors upheld while others were set aside.
JUDGMENT
The afore named appellants filed separate appeals against the common order passed by the Special Director of Enforcement Directorate on 30.09.2003 in File No.T-4/7-M/2000 & T-4/22-M/2002 vide No.SDE(SSB/IV/36-40/2003). All these appeals are interconnected and revolve around common facts, therefore, this common order has been passed while dealing each appeal separately. Order It is seen from the record that the Special Director issued five Show Cause Notices (SCNs) against these appellants and against Shri V.P. Gopalakrishnan Nair. The appeal filed by Shri V.P. Gopalakrishnan Nair has been dismissed on 09.01.2019 by the Division Bench. The SCNs were issued to all these appellants and Shri V.P. Gopalakrishnan Nair vide Memorandum dated 27.04.2000 by the Special Director for violation of Sections 18(2) & 18(3) and Section 18(2) & 18(3) of the Foreign Exchange Regulation Act (FERA), 1973 respectively read with relevant Central Government Notifications and proceeded against for adjudication. As per the allegations, the appellants and the deceased appellant have violated various provisions of FERA, 1973 as explained in the relevant Show Cause Notices. (i)
Memorandum bearing No.T-4/7-M/2000/SCN-I & SCN-II dated 27.04.2000 issued to M/s. Trend Setters Instyle India Ltd. & M/s. Mode Creazone India Pvt. Ltd. respectively for contravention of Sections 18(2) read with Central Government Notifications F.No.1/67/EC/73-1 & 2 both dated 01.01.1974 and Section 18(3) of FERA, 1973 for failure to realise export proceeds in respect of 51 GR forms and in respect of 21 GR forms involving US $ 7,45,333.95 & US $ 3,97,366,51 respectively. (ii)
Memorandum bearing No.T-4/7-M/2000/SCN-III dated 27.04.2000 issued to M/s. Trend Setters Instyle India Ltd. for contravention of Sections 8(3) and 8(4) of FERA, 1973 read with Para 7A-20 of the Exchange Control Manual-Vol.I, 1993 Edition (of the Reserve Bank of India) for failure to submit evidence of actual import of goods against remittance of US $ 2,51,371.81. (iii)
Memorandum bearing No.T-4/7-M/2000/SCN-IV dated 27.04.2000 issued to M/s. Trend Designs Ltd. for contravention of Sections 8(3) and 8(4) of FERA, 1973 read with Para 7A-20 of the Exchange Control Manual-Vol.I, 1993 Edition (of the Reserve Bank of India) for failure to submit evidence of actual import of goods against remittance of US $ 5,659. (iv)
Memorandum bearing No.T-4/22-M/2002 dated 30.05.2002 (hereinafter referred to as ‘SCN-V’) issued to M/s. Intimate Apparels (P) Ltd. for contravention of Sections 18(2) read with Central Government Notification F.No.1/67/EC/71-1 & 3 both dated 01.01.1974 and Section 18(3) of FERA, 1973 for failure to realise export proceeds in respect of 47 GR forms involving US $ 4,69,930.58.
The aforesaid appellants being Directors/functionaries in the said companies (‘Trend Setters Group’, for short) were charged for the aforesaid violations for the provisions of FERA, 1973 in terms of Section 68 of the said Act.
The facts as it appeared from the records are that on the basis of information received vide letter dated 30.07.1996 from the RBI, Kochi that, M/s. Trend Setters Instyle India Ltd. & M/s. Mode Creazone India Pvt. Ltd. carrying on business from the Cochin Export Processing Zone (CEPZ), had failed to realise substantial export proceeds and that the goods exported to buyers in U.S.A. & Canada were rejected due to poor quality and diverted to M/s. Trend Setters, Ajman and M/s. FSC Co. Ltd., Hong Kong without the RBI’s approval and that the companies did not vigorously follow up the realizations and that the exporter’s applications for set off/write off of unrealised export bills against unpaid import bills were pending. The RBI subsequently informed that, during 1995-97, the two companies and also M/s. Trend Designs Ltd. from the ‘Trend Setters Group’ made certain remittances to Hong Kong, Korea and UAE for import of fabrics/accessories for which Bills of Entry evidencing actual import of the materials were
