Supreme Court of India
SUBORNO BOSEversusENFORCEMENT DIRECTORATE & ANR.
- Citation
- 2020 INSC 278
- Decided
- 5 March 2020
- Disposal
- Dismissed
- Bench
- A M KHANWILKAR
Holding
Section 10(6) FEMA is a continuing, deeming offence; a managing director who was in charge after the contravention is liable unless he proves lack of knowledge or due diligence, which was not established, so the penalty stands.
Summary
The Enforcement Directorate issued a show‑cause notice against Zoom Enterprises Ltd and its Managing Director, Suborno Bose, alleging violation of Section 10(6) of the Foreign Exchange Management Act, 1999 (FEMA) for failing to use foreign exchange procured for the import of refrigeration equipment and for not surrendering it within the prescribed period. The goods remained in a bonded warehouse and the Bill of Entry was never filed, leading to a penalty of Rs 10 lakh each on the company and the managing director. The appellant contended that he became Managing Director only after the alleged contravention (in 2001) and therefore should not be liable. The Supreme Court held that Section 10(6) is a deeming, continuing offence and that liability attaches to any person in charge of the company at the time of the contravention unless he proves lack of knowledge or due diligence, which the appellant failed to do. Consequently, the penalty imposed under Sections 46 and 47 of FEMA was upheld and the appeal was dismissed.
Issues considered
- Whether Section 10(6) of FEMA constitutes a continuing offence attracting liability of a managing director who assumed office after the alleged contravention.
- Whether the appellant can invoke the proviso to Section 42(1) of FEMA by claiming lack of knowledge or due diligence.
- Interpretation of Section 10(6) as a deeming provision in the context of non‑utilisation of foreign exchange for the intended import.
- Whether the penalty imposed under Section 13(1) of FEMA is valid.
Legislation cited
- Foreign Exchange Management Act, 1999s. 10(6), s. 16(3), s. 42(1), s. 46, s. 47
- Foreign Exchange Manual, 2003-04s. A-10, s. A-11
- Foreign Exchange (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000s. 6
Subjects
FEMASection 10(6)continuing offencemanaging director liabilityforeign exchangeimport compliancepenaltydeeming provisionSection 42regulation 6
Judgment
60 [2020]
SUPREME COURT 4 S.C.R. 60
REPORTS [2020] 4 S.C.R.
A SUBORNO BOSE
v.
ENFORCEMENT DIRECTORATE & ANR.
(Civil Appeal No. 6267 of 2020)
B MARCH 05, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Foreign Exchange Management Act, 1999 – ss.10(6), 16(3),
46 & 47; Proviso to s.42(1) – Adjudicating authority held that the
appellant-Managing Director of the Company and the Company
C
had violated s.10(6) r/w ss.46, 47 and paragraphs A-10 and A-11
(Current Account Transaction) of the Foreign Exchange Manual
2003-04 – Appeal before Special Director (Appeals), FEMA &
Commissioner of Income-Tax, Delhi was dismissed – Appeal before
High Court – Dismissed – Held: s.10(6) is a deeming provision
D pointing towards specified circumstances, which would result in
having committed contravention of the provisions of the FEMA Act
or for the purpose of the stated Section – In the present case, the
finding of fact was 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
E
bonded warehouse and the Company took no steps to clear the
same – s.10(6) is clearly attracted being a case of not using the
procured foreign exchange for completing the import procedure –
Contravention referred to in s.10(6) is a continuing actionable
offence– Once it is held that the contravention is a continuing
F offence, the fact that the appellant was not looking after the affairs
of the Company in 2000 (the year of contravention) 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 (in terms of
MoU dtd. 22.10.01) and in particular after becoming aware about
the contraventions – No error committed by the adjudicating
G
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 – First appellate authority and the High Court justly
affirmed the said view – Foreign Exchange Management
H
60
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 61
(Realisation, Repatriation and Surrender of Foreign Exchange) A
Regulations, 2000 – Regulation 6.
Foreign Exchange Management Act, 1999 – Proviso to
s.42(1) – Benefit under – When can be availed – Discussed.
Dismissing the appeal, the Court
B
HELD: 1.1 Section 10(6) of the Foreign Exchange
Management Act, 1999 is a deeming provision pointing towards
the specified circumstances, which would result in having
committed contravention of the provisions of the FEMA Act or
for the purpose of the stated Section. The specified circumstances
are (i) when a person acquires or purchases foreign exchange for C
any purpose mentioned in the declaration made by him to
authorised person does not use it for such purpose; (ii) that
person does not surrender the acquired or purchased foreign
exchange to authorised person within the specified period, and
(iii) the person uses the acquired or purchased foreign exchange D
for any other purpose for which purchase or acquisition of foreign
exchange is not permissible under the provisions of the FEMA
Act or the rules or regulations or direction or order made
thereunder. Each of these are standalone circumstances. 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 E
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. [Paras 9, F
10][72-E-H; 73-A]
1.2 The High Court opined that the contravention referred
to in Section 10(6) by its very nature is a continuing offence. That
view is agreed with. The penalty provided for such contravention
is on account of civil obligation under the FEMA Act or the rules G
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
H
62 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 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 Company. 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
B
measures in right earnest. Regulation 6 of the Foreign Exchange
Management (Realisation, Repatriation and Surrender of Foreign
Exchange) Regulations, 2000 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,
C 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. To get benefit of
the proviso to Section 42(1), the appellant should have pleaded
and proved that the contravention took place without his
D
knowledge or that he exercised all due diligence to prevent such
contravention and made every effort to rectify the contravention
in right earnest. [Paras 11, 13][73-H; 74-A-B; 75-C-D]
1.3 Once it is held that the contravention is a continuing
offence, the fact that the appellant was not looking after the affairs
E 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. No error was
committed by the adjudicating authority in finding that the
F 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
G and the High Court justly affirmed the view so taken by the
adjudicating authority. [Paras 14, 15][76-D, G; 77-A]
M/s. Hindustan Steel Ltd. v. State of Orissa (1969) 2
SCC 627: [1970] 1 SCR 753 – distinguished.
H
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 63
Chairman, SEBI v. Shriram Mutual Fund & Anr. (2006) A
5 SCC 361 : [2006] 2 Suppl. SCR 833; Director of
Enforcement v. M.C.T.M. Corporation Pvt. Ltd. & Ors.
(1996) 2 SCC 471 : [1996] 1 SCR 215; M/s. Gujarat
Travancore Agency, Cochin v. Commissioner of Income
Tax, Kerala, Ernakulam (1989) 3 SCC 52 : [1989] 2
B
SCR 1000; Securities and Exchange Board of India v.
Cabot International Capital Corporation (2005) 123
Comp Cas 841 (Bom) – referred to.
Corpus Juris Secundum, Vol. 85, page 580, paragraph
1023 – referred to.
C
Case Law Reference
[2006] 2 Suppl. SCR 833 referred to Para 11
[1996] 1 SCR 215 referred to Para 11
[1989] 2 SCR 1000 referred to Para 11 D
[1970] 1 SCR 753 distinguished Para 14
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6267
of 2010.
From the Judgment and Order dated 17.09.2008 of the Calcutta E
High Court at Kolkata in FEA No. 17/2007.
Dinesh Chandra Pandey, Alok Upadhyay and Ms. Shubhangi
Tiwari, Advs. for the Appellant.
Binu Tamta, Rupesh Kumar, Umesh Kumar Saw and Mrs. Anil
Katiyar, Advs. for the Respondents. F
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J.
1. This appeal emanates from the complaint proceedings initiated
by the adjudicating authority being Deputy Director, Enforcement G
Directorate Foreign Exchange Management Act, under Section 16(3)
of the Foreign Exchange Management Act, 1999 (for short, “the FEMA
Act”).
H
64 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 2. A show-cause notice dated 19.5.2004 was issued to the
appellant, stating that the adjudicating authority was satisfied that there
was a prima facie contravention of Section 10(6) of the FEMA Act
read with Sections 46 and 47 of the said Act and paragraphs A-10 and
A-11 (Current Account Transaction) of the Foreign Exchange Manual
2003-04 in the complaint filed against the company named M/s. Zoom
B
Enterprises Limited (for short, “the Company”) of which, the appellant
was the Managing Director. The appellant filed his reply to the said
show-cause notice on 10.6.2004, inter alia, contending that the Company
had purchased 2 Nos. of Water Cooled Screw Chiller Unit Model and
other accessories for a cost of 374000 FRF from Carrier S.A. of France
C and Air Handling and Fan Coil Unit for US$ 35766 from Carrier
Corporation, Syracuse, New York. The import was done under Export
Promotion Capital Goods (EPCG) Licence under Open General Licence
(OGL). The goods were imported, but kept in warehouse, as the
Company, which at the relevant time was under Mr. Aniruddha Roy
Chowdhury and others, failed to take steps to get the goods released.
D
The appellant took over the project only in July, 2002 and afterwards, he
spent nearly 5 crores of rupees for the project work. Due to financial
constraints, in February, 2003, a request was made to Tourism Finance
Corporation of India Limited (TFCI) for sanction of a bank guarantee of
Rs.40,00,000/- (Rupees forty lakhs only) to get the shipment in question
E cleared from the Customs Department, but for the reasons beyond the
control of the Company and the appellant in particular, the shipment
could not be cleared. A request was made to the Customs authority to
help the Company to get the goods cleared, in case the clearing agent is
unable to take necessary steps on their behalf. In the end, a request was
made in the reply to grant more time to get the goods cleared and to
F
submit the Bill of Entry (Exchange Control Copy) with the authorised
dealer.
3. The reply to the show-cause notice filed on behalf of the
Company including for the appellant and the submissions made before
the adjudicating authority were duly considered by the adjudicating
G authority in its Order (Original) dated 30.12.2004. The adjudicating
authority concluded that the noticee Company and the appellant had
violated the provisions of Section 10(6) of the FEMA Act read with
Sections 46 and 47 of the said Act read with paragraphs A-10 and A-11
(Current Account Transaction) of the Foreign Exchange Manual 2003-
H
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 65
[A. M. KHANWILKAR, J.]
04 having found that the goods had arrived in India, but the Company A
failed to submit Bill of Entry and did not take delivery of the goods. The
import formalities would have had completed only after submission of
Bill of Entry. Thus, though the goods for which foreign exchange was
remitted had reached the destination of the users, but the same were not
released and as such kept in bonded warehouse. That resulted in
B
contravention warranting issuance of show-cause notice to the Company
and the appellant. Resultantly, the adjudicating authority passed the
following order: -
“ORDER
In view of my above findings, I hold M/s Zoom enterprises C
Ltd., and their Managing Director Sri Suborno Bose guilty of the
charge. In exercise of powers conferred on me under section
13(I) of the Foreign Exchange Management Act, 1999. I impose
on them the following amount of penalty.
1) M/s Zoom Enterprise Ltd. Rs.10,00,000/- Rupees D
Ten Lakhs
2) Sri Suborno Bose Rs.10,00,000/-(Rupees
Ten Lakhs)
The penalty amount so imposed in terms of the provisions
of section 13(I) of the said Act shall be deposited in the office of E
the Deputy Director, Directorate of Enforcement, Calcutta by
cheques/demand draft issued in favour of the Chief Enforcement
Officer (Admn.), 3rd M.S.O. Building, 6th floor, C&D Wing, Salt
Lake, Calcutta 700064 within 45 days from the date of receipt of
this order.” F
4. The Company, as well as, the appellant carried the matter in
appeal before the Special Director (Appeals), FEMA & Commissioner
of Income-Tax, Delhi being Appeal Nos. SD(A)/Kol/04/05/112 and
SD(A)/Kol/04/05/113. The appellate authority vide order dated 13.6.2005
dismissed both the appeals and was pleased to uphold the decision of the
G
adjudicating authority. After adverting to the admitted facts, the appellate
authority proceeded to consider the requirements of the relevant
provisions necessitating submission of Bill of Entry to effectuate the
remittance and complete the import of the goods for which the remittance
was made. The appellate authority observed as follows: -
H
66 SUPREME COURT REPORTS [2020] 4 S.C.R.
A “7. As per the provisions of Section 10(6) of FEMA, the foreign
exchange acquired from an authorized dealer has to be utilized
for the purpose it was released or otherwise it should have been
surrendered to the authorized dealer. The Regulation 6(1) in the
FEMA (Realisation, Repatriation & Surrender of Foreign
Exchange) Regulation 2000 issued by RBI on 3.5.2000, prescribe
B
that the transaction should be completed within a period of sixty
days from the date of acquisition or purchase of foreign exchange.
The RBI has issued a master circular No.7/2004-05 dated 1.7.2004
but the Circular No.9 A.P. (DIR Series) (2000-01) issued on
24.8.2000 by the RBI, prescribing guidelines for the import of
C goods/currency, is applicable at the relevant time when the
appellant company imported the goods. Certain obligations and
requirements have been prescribed for the purchaser of the foreign
exchange in Para A.3 and A.17. As per para A.17 (ii), it is obligatory
on the purchaser of foreign exchange for all imports with value
exceeding US $ 5000, to submit exchange control copy of the bill
D
of entry for home consumption, to the authorized dealer. If such
original bill of entry is not submitted within six months from the
date of remittance the authorized dealer has to report the same to
the RBI.
8. In the present case the foreign exchange was remitted
E on 18/4/2000 and 19/6/2000 for import of refrigerating
machinery, but instead of taking the delivery of the imported
goods, these were warehoused. The management of the
company as argued by the Ld. Counsel, changed hands in
October, 2001. As per the requirements of section 10(6) of
F FEMA RBI regulation dt. 3.5.2000 and circular dt.
24.8.2000, supra the formalities for import have to be
completed within six months of remittance of foreign
exchange. If the appellant is unable to comply with these
requirements under FEMA and the RBI, necessary
approval of the authorized dealer and the RBI is necessary.
G Though the imports were made in 2000 but no steps have
been taken till 2005 either to take delivery of the goods so
imported and warehoused or for taking necessary
extension/approval from RBI/authorized dealer. As far as
the change in management of the company is concerned,
H the change took place in late 2001 but even after the change
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 67
[A. M. KHANWILKAR, J.]
in management, the then Chairman, Sh. Anirudh Rai A
Choudhary, remained Director of the new company up to
2004, as is mentioned in the annual report for the year 2003-
04, a copy enclosed with the appeal petition. The Managing
Director of the changed company was well aware of the goods
so imported and warehoused as a reply were submitted to
B
the Enforcement Authorities as early as in July, 2002.
9. As far as financial constraints are concerned it is seen
from the MOU dt. 22.10.2001 that the appellant company
was transferred from the old management to the new
management after the shares were transferred for about
six crores of rupees. From the annual report for the year C
2003-04, it is seen that loans of Rs. 7.33 crores were taken
and invested a capital work-in-progress shown at Rs. 13.07
crores. The company also advanced Rs. 1.20 crores
Substantial investment was made in the capital work
including air conditioners, furniture and electrical D
installation, etc, etc. In spite of availability of sufficient funds
during this period the appellant company did not take any
step to take delivery of the imported goods which are lying
in the warehouse since 2000. Note was given in Schedule
11 to the annual accounts that the liability against bank
guarantee and customs duty in respect of import of air E
conditioning plant was not provided in the accounts. The
sequence of such events clearly show that the appellant
company and its Managing Director responsible for running
the company did not take reasonable steps of delivery of
the imported goods so warehoused and thereafter to submit F
bill of entry to the authorized dealer.
10. It is therefore evident that the appellants did not comply with
the requirements of section 10(6) of FEMA, RBI regulation
dt. 3.5.2000 and circular dt. 24.8.2000, supra. Even when the
show cause notice was issued by the AA steps were not taken to G
take delivery of the goods from the warehouse and to submit the
bill of entry to the authorized dealer. It is therefore held that the
appellant company is guilty of contravening these provisions of
FEMA and guidelines issued by the RBI supra. The AA is justified
in imposing the penalty at Rs.10 lakhs on the appellant company
H
68 SUPREME COURT REPORTS [2020] 4 S.C.R.
A which is confirmed. The appeal filed by the appellant company is
accordingly dismissed.
11. As far as the other appellant is concerned Sh. Suborno
Bose was the Managing Director and responsible for the
conduct of business of the company. He is so guilty of
B contravention of provisions of FEMA and guidelines of RBI
thereof, supra. It is therefore held that AA is justified in
imposing the penalty of Rs.10 lakhs on the appellant
Managing Director which is confirmed. The appeal filed by
the Managing Director is accordingly dismissed.
C 12. The Ld. Counsel has referred to certain decisions under Excise
and Custom Act. These cases have not been discussed as the
violation under FEMA and RBI guidelines depends on the facts
of each individual case. The appeal being decided on the merits
of the case under consideration.
D 13. It is necessary to mention here that the foreign exchange was
remitted in 2000, the goods were imported in 2000 and were
warehoused in 2000 when Sh. Anirudh Rai Choudhary, was the
then Chairman of the company. He remained Chairman till October,
2001 when the management changed as per MOU. Sh. Anirudh
Rai Choudhary remained Director of the new company till 2004
E as in evident from the annual report for the year 2003-04. As he
was in-charge and was responsible for the conduct of business of
the company at the time foreign exchange was remitted and goods
were imported, he also seems to be responsible for the violation
of provisions of FEMA and RBI guidelines supra. The AA may
F consider initiation of adjudication proceedings against Sh. Anirudh
Rai Choudhary.
14. Since the relevant appeals have been decided their applications
for stay have become infructuous. The AA is directed to give
effect to this order.”
G (emphasis supplied)
5. Being aggrieved, the Company, as well as the appellant carried
the matter before the High Court at Calcutta (for short, “the High Court”)
by way of FEA Nos. 17/2007 and 18/2007. Both appeals were dismissed
by the High Court vide judgment and order dated 17.9.2008. It noted
H the rival submissions and observed thus: -
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 69
[A. M. KHANWILKAR, J.]
“After hearing the learned Counsel for the parties and after going A
through the materials on record placed before us, we are of the
opinion that the violation which has been done by the appellant/
petitioner, cannot be stated to be a technical violation and it is
well-settled law that contravention of the said Act or Foreign
Exchange Regulation Act, 1973 has created a strict liability. The
B
violation of these two Acts would come within the meaning of
economic offence and cannot be treated as technical offence.
Hence, in our considered opinion, after initial committal and/
or contravention of Section 10(6) of the said Act, the violation
continues till the time, compliance is made. Therefore, we hold
that taking over the charge of the appellate company in the year C
2002, cannot absolve the appellant from the liability and, in our
considered opinion, the appellant company correctly held as guilty
on the face of the continuance of the offence.
Hence, we are of the considered opinion that the Learned
Tribunal correctly came to the conclusion and we do not find that D
there is any reason whatsoever to interfere with the order so
passed by the Learned Tribunal. Accordingly, both the appeals
are dismissed.
For the reasons stated hereinabove, both the appeals are
disposed of.” E
Against the decision of the High Court, the Company, as well as
the appellant preferred separate special leave petitions before this Court.
The special leave petition filed by the Company, being SLP(C) No. 6897/
2009 came to be dismissed on 30.3.2009. By the same order, the Court
issued notice on the special leave petition being SLP(C) No. 6551/2009 F
filed by the appellant, from which the present appeal has arisen. The
order reads thus: -
“Special Leave Petition (C) No.6897 of 2009 is dismissed.
Keeping in view the contentions raised before us while dismissing
G
S.L.P. (C) No.6897 of 2009, issue notice in S.L.P. (C) No.6551 of
2009.”
Resultantly, what remains to be decided in the appeal preferred
by the appellant is limited to his argument that the appellant herein could
not be made liable for the contravention committed by the erstwhile
management of the Company. H
70 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 6. We have heard learned counsel for the parties.
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
B 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
C 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.
D 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 examined.
E 8. In other words, the core issue that needs to be considered in
the present appeal is limited to the defence of the appellant that he could
not be made responsible for the stated contravention. For, he became
the Managing Director of the Company much later i.e. on 22.10.2001.
For examining that argument, we may have to advert to Sections 10(5)
and 10(6) of the FEMA Act. The same read thus: -
F
“10. Authorised person.-
xxx xxx xxx
(5) An authorised person shall, before undertaking any transaction
in foreign exchange on behalf of any person, require that person
G to make such declaration and to give such information as will
reasonably satisfy him that the transaction will not involve, and is
not designed for the purpose of any contravention or evasion of
the provisions of this Act or of any rule, regulation, notification,
direction or order made thereunder, and where the said person
refuses to comply with any such requirement or makes only
H
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 71
[A. M. KHANWILKAR, J.]
unsatisfactory compliance therewith, the authorised person shall A
refuse in writing to undertake the transaction and shall, if he has
reason to believe that any such contravention or evasion as
aforesaid is contemplated by the person, report the matter to the
Reserve Bank.”
(6) Any person, other than an authorised person, who has acquired B
or purchased foreign exchange for any purpose mentioned in the
declaration made by him to authorised person under sub-section
(5) does not use it for such purpose or does not surrender it to
authorised person within the specified period or uses the foreign
exchange so acquired or purchased for any other purpose for
which purchase or acquisition of foreign exchange is not C
permissible under the provisions of the Act or the rules or
regulations or direction or order made thereunder shall be deemed
to have committed contravention of the provisions of the Act for
the purpose of this section.”
Additionally, it will be useful to advert to Section 42 of the FEMA D
Act, which reads thus: -
“42. Contravention by companies.—(1) Where a person
committing a contravention of any of the provisions of this Act or
of any rule, direction or order made thereunder is a company,
every person who, at the time the contravention was committed, E
was in charge of, and was responsible to, the company for the
conduct of the business of the company as well as the company,
shall be deemed to be guilty of the contravention and shall be
liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall F
render any such person liable to punishment if he proves that the
contravention took place without his knowledge or that he
exercised all due diligence to prevent such contravention.
(2) Notwithstanding anything contained in sub-section (1), where
a contravention of any of the provisions of this Act or of any rule, G
direction or order made thereunder has been committed by a
company and it is proved that the contravention has taken place
with the consent or connivance of, or is attributable to any neglect
on the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer
H
72 SUPREME COURT REPORTS [2020] 4 S.C.R.
A shall also be deemed to be guilty of the contravention and shall be
liable to be proceeded against and punished accordingly.
Explanation.—For the purposes of this section—
(i) “company” means any body corporate and includes a firm or
other association of individuals; and
B
(ii) “director”, in relation to a firm, means a partner in the firm.”
A fair reading of Section 10(5) envisages that the authorised person
before undertaking any transaction in foreign exchange on behalf of any
person, must require that person to make a declaration and to give such
C information as will reasonably satisfy the authorised person that the
transaction will not involve, and is not designated for the purpose of any
contravention or evasion of the provisions of the FEMA Act or of any
rule, regulation, notification, direction or order made thereunder. If such
satisfaction is not reached, the authorised person need not proceed with
the proposed transaction and must report about the same to the Reserve
D Bank.
9. The real provision which needs to be reckoned for answering
the controversy brought before this Court is Section 10(6) of the FEMA
Act. This provision is a deeming provision pointing towards the specified
circumstances, which would result in having committed contravention
E of the provisions of the FEMA Act or for the purpose of the stated
Section. The specified circumstances are (i) when a person acquires or
purchases foreign exchange for any purpose mentioned in the declaration
made by him to authorised person does not use it for such purpose; (ii)
that person does not surrender the acquired or purchased foreign
F exchange to authorised person within the specified period, and (iii) the
person uses the acquired or purchased foreign exchange for any other
purpose for which purchase or acquisition of foreign exchange is not
permissible under the provisions of the FEMA Act or the rules or
regulations or direction or order made thereunder. Each of these are
standalone circumstances.
G
10. 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
H clearly attracted being a case of not using the procured foreign exchange
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 73
[A. M. KHANWILKAR, J.]
for completing the import procedure. It is also possible to take the view A
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 India.
B
The said regulation reads thus: -
6. Period of surrender in certain cases: - (1) Any person who
has acquired or purchased foreign exchange for any purpose
mentioned in the declaration made by him to an authorised person
under sub-section (5) of section 10 of the Act does not use it for
such purpose or for any other purpose for which purchase or C
acquisition of foreign exchange is permissible under the provisions
of the Act or the rules or regulations or direction or order made
thereunder, shall surrender such foreign exchange or the unused
portion thereof to an authorised person within a period of sixty
days from the date of its acquisition or purchase by him. D
(2) Notwithstanding anything contained in sub-regulation (1), where
the foreign exchange acquired or purchased by any person from
an authorised person is for the purpose of foreign travel, then, the
unspent balance of such foreign exchange shall, save as otherwise
provided in the regulations made under the Act, be surrendered to E
an authorised person-
(i). within ninety days from the date of return of the traveller
to India, when the unspent foreign exchange is in the form of
currency notes and coins; and
(ii). within one hundred eighty days from the date of return of F
the traveller to India, when the unspent foreign exchange is in
the form of travellers cheques.”
The appellant has placed reliance on the text of Section 42 of the
FEMA Act to bolster his argument that only such person who was in
charge of the Company at the time the contravention was committed, G
would be responsible for the action.
11. 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 H
74 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 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
B
by the Company and the persons in charge of the affairs of the Company.
The High Court has adverted to the exposition in Chairman, SEBI Vs.
Shriram Mutual Fund & Anr.1. In this decision, while dealing with the
question as to whether mens rea is essential for imposing penalty for
breach of civil obligations, the Court adverted to the dictum in Director
C of Enforcement vs. M.C.T.M. Corporation Pvt. Ltd. & Ors.2, which
in turn had quoted the exposition in Corpus Juris Secundum, Vol. 85,
page 580, paragraph 1023, which reads thus: -
“A penalty imposed for a tax delinquency is a civil obligation,
remedial and coercive in its nature, and is far different from the
D penalty for a crime or a fine or forfeiture provided as punishment
for the violation of criminal or penal laws.”
In the same judgment, the Court has also taken note of the decision
in M/s. Gujarat Travancore Agency, Cochin vs. Commissioner of
Income Tax, Kerala, Ernakulam3, which had opined that the intention
E 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
Corporation4, the Court delineated principles as follows: -
F “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.
G
(C) If, from the scheme, object and words used in the statute, it
appears that the proceedings for imposition of the penalty are
1
(2006) 5 SCC 361
2
(1996) 2 SCC 471
3
(1989) 3 SCC 52
H 4
(2005) 123 CompCas 841 (Bom)
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 75
[A. M. KHANWILKAR, J.]
adjudicatory in nature, in contradistinction to criminal or quasi- A
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
B
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.” C
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 D
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 E
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 F
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 G
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
H
76 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 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
B 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.
C
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
D aware about the contraventions. The appellant has placed reliance on
the dictum of this Court in M/s. Hindustan Steel Ltd. vs. State of Orissa5.
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: -
E “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
F 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.
G 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
5
H (1969) 2 SCC 627 (paragraph 8)
SUBORNO BOSE v. ENFORCEMENT DIRECTORATE 77
[A. M. KHANWILKAR, J.]
Act read with paragraphs A-10 and A-11 (Current Account Transaction) A
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.
16. Accordingly, this appeal fails and the same is dismissed with
no order as to costs. B
Divya Pandey Appeal dismissed.
C
D
E
F
G
H
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