Case: SUBORNO BOSE Vs. ENFORCEMENT DIRECTORATE &amp; ANR

of the decision in M/s. Gujarat Travancore Agency, Cochin vs. Commissioner of Income Tax, Kerala, Ernakulam (1989) 3 SCC 52 , which had opined that the intention of the legislature such as the one under consideration is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although element of coercion is present in the penalty. In Securities and Exchange Board of India vs. Cabot International Capital Corporation (2005) 123 CompCas 841 (Bom), the Court delineated principles as follows: - 47. Thus, the following extracted principles are summarised: (A) Mens rea is an essential or sine qua non for criminal offence. (B) A straitjacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted in a given case. (C) If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word penalty by itself will not be determinative to conclude the nature of proceedings being criminal or quasi-criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravenor and the delinquency. (D) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. (E) There can be two distinct liabilities, civil and criminal, under the same Act. As aforementioned, the contravention referred to in Section 10(6) of the FEMA Act is a continuing actionable offence. If so, the Company and the persons managing the affairs of the Company remain liable to take corrective measures in right earnest. Considering the admitted fact that the appellant took over the management of the Company on 22.10.2001 and was fully alive to the default committed by the Company, yet failed to take corrective steps in right earnest. Notably, being conscious of such contravention, the appellant had sought indulgence of the authorities for more time. It must follow that the appellant cannot now be heard to contend that no liability could be fastened on him individually. Indeed, regulation 6 of the FEMA Regulations provides for the period within which the foreign exchange ought to be surrendered if the Company was not wanting to take delivery of the goods imported. That, however, does not mean that the contravention ceased to exist beyond the specified period. On the other hand, after the specified period as predicated in regulation 6 had expired, it would be a case of deemed contravention until rectified. 12. It is not the case of the appellant that he is not an officer or a person in charge of and responsible to the Company for the conduct of the business of the Company, as well as, the Company on or after 22.10.2001. Considering the fact that the appellant admittedly became aware of the contravention yet failed to take corrective measures until the action to impose penalty for such contravention was initiated, he cannot be permitted to invoke the only defence available in terms of proviso to sub-Section (1) of Section 42 of the FEMA Act that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. In the reply filed to the show-cause notice by the appellant, no such specific plea has been taken. 13. The appellant then invited our attention to the reply filed on behalf of the Company on 27.1.2004 in which it is vaguely asserted that on the date when the Memorandum of Understanding was signed, no disclosure was made that the import was done under EPCG licence and the obligations under the said licence remained to be fulfilled. To get benefit of the proviso to Section 42(1), the appellant should have pleaded and proved that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention and made every effort to rectify the contravention in right earnest. 14. Be that as it may, once it is held that the contravention is a continuing offence, the fact that the appellant was not looking after the affairs of the Company in the year 2000 would be of no avail to the appellant until corrective steps were taken in right earnest after his taking over the management of the Company and in particular after becoming aware about the contraventions. The appellant has placed reliance on the dictum of this Court in M/s. Hindustan Steel Ltd. vs. State of Orissa (1969) 2 SCC 627 ( paragraph 8). This decision has been distinguished in the case of Shriram (supra) as can be discerned from paragraph 34 of the reported judgment, which reads thus: - 34. The Tribunal has erroneously relied on the judgment in Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627 which pertained to criminal/quasi-criminal proceedings. That Section 25 of the Orissa Sales Tax Act which was in question in the said case imposed a punishment of imprisonment up to six months and fine for the offences under the Act. The said case has no application in the present case which relates to imposition of civil liabilities under the SEBI Act and the Regulations and is not a criminal/quasi-criminal proceeding. We are in agreement with the view so expressed. 15. To sum up, we hold that no error has been committed by the adjudicating authority in finding that the appellant was also liable to be proceeded with for the contravention by the Company of which he became the Managing Director and for penalty therefor as prescribed for the contravention of Section 10(6) read with Sections 46 and 47 of the FEMA Act read with paragraphs A-10 and A-11 (Current Account Transaction) of the Foreign Exchange Manual 2003-04. The first appellate authority and the High Court justly affirmed the view so taken by the adjudicating authority.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]7. Be it noted that the contravention relates to the period of the year 2000, whereas, the appellant took over the management of the Company in terms of the Memorandum of Understanding dated 22.10.2001 entered into in that behalf. The appellant wanted to argue that in the facts of the present case, there was no contravention of Section 10(5) of the FEMA Act or any other provision necessitating action under Section 10(6) of the said Act muchless initiating complaint procedure. Ordinarily, the appellant could have been allowed to pursue such argument, but for the dismissal of the special leave petition filed by the Company. In that, consequent to the dismissal of the petition filed by the Company, the finding and conclusion recorded by the adjudicating authority as upheld by the first appellate authority, and of the High Court recording contravention committed by the Company and for which complaint action was just and proper including the imposition of penalty as awarded against the Company and the appellant has attained finality. That cannot be reopened muchless at the instance of the present appellant. This is reinforced by the order issuing notice on the special leave petition filed by the present appellant, dated 30.3.2009. It is indicative of the fact that the contentions specific to absolve the appellant from the complaint action could be examined10. In the present case, the finding of fact is that the import of goods for which the foreign exchange was procured and remitted was not completed as the Bill of Entry remained to be submitted and the goods were kept in the bonded warehouse and the Company took no steps to clear the same. As a result, Section 10(6) of the FEMA Act is clearly attracted being a case of not using the procured foreign exchange for completing the import procedure. It is also possible to take the view that the Company should have taken steps to surrender the foreign exchange to the authorised person within the specified time as provided in Regulation 6 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 (for short, the FEMA Regulations) issued by the Reserve Bank of India11. The High Court has opined that the contravention referred to in Section 10(6) by its very nature is a continuing offence. We agree with that view. It is indisputable that the penalty provided for such contravention is on account of civil obligation under the FEMA Act or the rules or regulations or direction or order made thereunder. If the delinquency is a civil obligation, the defaulter is obligated to make efforts by payment of the penalty imposed for such contravention. So long as the imported goods remained uncleared and obligation provided under the rules and regulations to submit Bill of Entry was not discharged, the contravention would continue to operate until corrective steps were taken by the Company and the persons in charge of the affairs of the CompanyAs aforementioned, the contravention referred to in Section 10(6) of the FEMA Act is a continuing actionable offence. If so, the Company and the persons managing the affairs of the Company remain liable to take corrective measures in right earnest. Considering the admitted fact that the appellant took over the management of the Company on 22.10.2001 and was fully alive to the default committed by the Company, yet failed to take corrective steps in right earnest. Notably, being conscious of such contravention, the appellant had sought indulgence of the authorities for more time. It must follow that the appellant cannot now be heard to contend that no liability could be fastened on him individually. Indeed, regulation 6 of the FEMA Regulations provides for the period within which the foreign exchange ought to be surrendered if the Company was not wanting to take delivery of the goods imported. That, however, does not mean that the contravention ceased to exist beyond the specified period. On the other hand, after the specified period as predicated in regulation 6 had expired, it would be a case of deemed contravention until rectified12. It is not the case of the appellant that he is not an officer or a person in charge of and responsible to the Company for the conduct of the business of the Company, as well as, the Company on or after 22.10.2001. Considering the fact that the appellant admittedly became aware of the contravention yet failed to take corrective measures until the action to impose penalty for such contravention was initiated, he cannot be permitted to invoke the only defence available in terms of proviso to sub-Section (1) of Section 42 of the FEMA Act that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. In the reply filed to the show-cause notice by the appellant, no such specific plea has been takenTo get benefit of the proviso to Section 42(1), the appellant should have pleaded and proved that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention and made every effort to rectify the contravention in right earnest14. Be that as it may, once it is held that the contravention is a continuing offence, the fact that the appellant was not looking after the affairs of the Company in the year 2000 would be of no avail to the appellant until corrective steps were taken in right earnest after his taking over the management of the Company and in particular after becoming aware about the contraventionsThis decision has been distinguished in the case of Shriram (supra) as can be discerned from paragraph 34 of the reported judgment, which reads thus: -34. The Tribunal has erroneously relied on the judgment in Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627  which pertained to criminal/quasi-criminal proceedings. That Section 25 of the Orissa Sales Tax Act which was in question in the said case imposed a punishment of imprisonment up to six months and fine for the offences under the Act. The said case has no application in the present case which relates to imposition of civil liabilities under the SEBI Act and the Regulations and is not a criminal/quasi-criminal proceedingWe are in agreement with the view so expressed15. To sum up, we hold that no error has been committed by the adjudicating authority in finding that the appellant was also liable to be proceeded with for the contravention by the Company of which he became the Managing Director and for penalty therefor as prescribed for the contravention of Section 10(6) read with Sections 46 and 47 of the FEMA Act read with paragraphs A-10 and A-11 (Current Account Transaction) of the Foreign Exchange Manual 2003-04. The first appellate authority and the High Court justly affirmed the view so taken by the adjudicating authority.