SUBORNO BOSE versus ENFORCEMENT DIRECTORATE & ANR. on 5 March 2020

[2020] 4 S.C.R. 60

SUPREME COURT REPORTS

[2020] 4 S.C.R.

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SUBORNO BOSE

v.

ENFORCEMENT DIRECTORATE & ANR.

(Civil Appeal No. 6267 of 2020)

BMARCH 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 theappellant-Managing Director of the Company and the CompanyChad violated s.10(6) r/w ss.46, 47 and paragraphs A-10 and A-11(Current Account Transaction) of the Foreign Exchange Manual2003-04 – Appeal before Special Director (Appeals), FEMA &Commissioner of Income-Tax, Delhi was dismissed – Appeal beforeHigh Court – Dismissed – Held: s.10(6) is a deeming provisionDpointing towards specified circumstances, which would result inhaving committed contravention of the provisions of the FEMA Actor for the purpose of the stated Section – In the present case, thefinding of fact was that the import of goods for which the foreignexchange was procured and remitted was not completed as the Billof Entry remained to be submitted and the goods were kept in theEbonded warehouse and the Company took no steps to clear thesame – s.10(6) is clearly attracted being a case of not using theprocured foreign exchange for completing the import procedure –Contravention referred to in s.10(6) is a continuing actionableoffence– Once it is held that the contravention is a continuingFoffence, the fact that the appellant was not looking after the affairsof the Company in 2000 (the year of contravention) would be of noavail to the appellant until corrective steps were taken in right earnestafter his taking over the management of the Company (in terms ofMoU dtd. 22.10.01) and in particular after becoming aware aboutthe contraventions – No error committed by the adjudicatingGauthority in finding that the appellant was also liable to be proceededwith for the contravention by the Company of which he became theManaging Director and for penalty therefor as prescribed for thecontravention – First appellate authority and the High Court justlyaffirmed the said view – Foreign Exchange ManagementH

(Realisation, Repatriation and Surrender of Foreign Exchange)Regulations, 2000 – Regulation 6.

Foreign Exchange Management Act, 1999 – Proviso tos.42(1) – Benefit under – When can be availed – Discussed.

Dismissing the appeal, the Court

HELD: 1.1 Section 10(6) of the Foreign ExchangeManagement Act, 1999 is a deeming provision pointing towardsthe specified circumstances, which would result in havingcommitted contravention of the provisions of the FEMA Act orfor the purpose of the stated Section. The specified circumstancesare (i) when a person acquires or purchases foreign exchange forany purpose mentioned in the declaration made by him toauthorised person does not use it for such purpose; (ii) thatperson does not surrender the acquired or purchased foreignexchange to authorised person within the specified period, and(iii) the person uses the acquired or purchased foreign exchangefor any other purpose for which purchase or acquisition of foreignexchange is not permissible under the provisions of the FEMAAct or the rules or regulations or direction or order madethereunder. Each of these are standalone circumstances. In thepresent case, the finding of fact is that the import of goods forwhich the foreign exchange was procured and remitted was notcompleted as the Bill of Entry remained to be submitted and thegoods were kept in the bonded warehouse and the Company tookno steps to clear the same. As a result, Section 10(6) of the FEMAAct is clearly attracted being a case of not using the procuredforeign exchange for completing the import procedure. [Paras 9,10][72-E-H; 73-A]

1.2 The High Court opined that the contravention referredto in Section 10(6) by its very nature is a continuing offence. Thatview is agreed with. The penalty provided for such contraventionis on account of civil obligation under the FEMA Act or the rulesor regulations or direction or order made thereunder. If thedelinquency is a civil obligation, the defaulter is obligated to makeefforts by payment of the penalty imposed for such contravention.So long as the imported goods remained uncleared and obligationprovided under the rules and regulations to submit Bill of Entry A

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Awas not discharged, the contravention would continue to operateuntil corrective steps were taken by the Company and the personsin charge of the affairs of the Company. The contraventionreferred to in Section 10(6) of the FEMA Act is a continuingactionable offence. If so, the Company and the persons managingthe affairs of the Company remain liable to take correctiveBmeasures in right earnest. Regulation 6 of the Foreign ExchangeManagement (Realisation, Repatriation and Surrender of ForeignExchange) Regulations, 2000 provides for the period within whichthe foreign exchange ought to be surrendered if the Companywas not wanting to take delivery of the goods imported. That,Chowever, does not mean that the contravention ceased to existbeyond the specified period. On the other hand, after the specifiedperiod as predicated in regulation 6 had expired, it would be acase of deemed contravention until rectified. To get benefit ofthe proviso to Section 42(1), the appellant should have pleadedand proved that the contravention took place without hisDknowledge or that he exercised all due diligence to prevent suchcontravention and made every effort to rectify the contraventionin right earnest. [Paras 11, 13][73-H; 74-A-B; 75-C-D]

1.3 Once it is held that the contravention is a continuingoffence, the fact that the appellant was not looking after the affairsEof the Company in the year 2000 would be of no avail to theappellant until corrective steps were taken in right earnest afterhis taking over the management of the Company and in particularafter becoming aware about the contraventions. No error wascommitted by the adjudicating authority in finding that theFappellant was also liable to be proceeded with for the contraventionby the Company of which he became the Managing Director andfor penalty therefor as prescribed for the contravention of Section10(6) read with Sections 46 and 47 of the FEMA Act read withparagraphs A-10 and A-11 (Current Account Transaction) of theForeign Exchange Manual 2003-04. The first appellate authorityGand the High Court justly affirmed the view so taken by theadjudicating authority. [Paras 14, 15][76-D, G; 77-A]

M/s. Hindustan Steel Ltd. v. State of Orissa (1969) 2SCC 627: [1970] 1 SCR 753 – distinguished.

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SUBORNO BOSE v. ENFORCEMENT DIRECTORATE

Chairman, SEBI v. Shriram Mutual Fund & Anr. (2006)5 SCC 361 : [2006] 2 Suppl. SCR 833; Director ofEnforcement v. M.C.T.M. Corporation Pvt. Ltd. & Ors.(1996) 2 SCC 471 : [1996] 1 SCR 215; M/s. GujaratTravancore Agency, Cochin v. Commissioner of IncomeTax, Kerala, Ernakulam (1989) 3 SCC 52 : [1989] 2SCR 1000; Securities and Exchange Board of India v.Cabot International Capital Corporation (2005) 123Comp Cas 841 (Bom) – referred to.

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Corpus Juris Secundum, Vol. 85, page 580, paragraph1023 – referred to.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6267of 2010.

From the Judgment and Order dated 17.09.2008 of the CalcuttaHigh Court at Kolkata in FEA No. 17/2007.

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Dinesh Chandra Pandey, Alok Upadhyay and Ms. ShubhangiTiwari, Advs. for the Appellant.

Binu Tamta, Rupesh Kumar, Umesh Kumar Saw and Mrs. AnilKatiyar, Advs. for the Respondents.

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The Judgment of the Court was delivered by

A. M. KHANWILKAR, J.

1. This appeal emanates from the complaint proceedings initiatedby the adjudicating authority being Deputy Director, EnforcementDirectorate Foreign Exchange Management Act, under Section 16(3)of the Foreign Exchange Management Act, 1999 (for short, “the FEMAAct”).

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A2. A show-cause notice dated 19.5.2004 was issued to theappellant, stating that the adjudicating authority was satisfied that therewas a prima facie contravention of Section 10(6) of the FEMA Actread with Sections 46 and 47 of the said Act and paragraphs A-10 andA-11 (Current Account Transaction) of the Foreign Exchange Manual2003-04 in the complaint filed against the company named M/s. ZoomBEnterprises Limited (for short, “the Company”) of which, the appellantwas the Managing Director. The appellant filed his reply to the saidshow-cause notice on 10.6.2004, inter alia, contending that the Companyhad purchased 2 Nos. of Water Cooled Screw Chiller Unit Model andother accessories for a cost of 374000 FRF from Carrier S.A. of FranceCand Air Handling and Fan Coil Unit for US$ 35766 from CarrierCorporation, Syracuse, New York. The import was done under ExportPromotion Capital Goods (EPCG) Licence under Open General Licence(OGL). The goods were imported, but kept in warehouse, as theCompany, which at the relevant time was under Mr. Aniruddha RoyChowdhury and others, failed to take steps to get the goods released.DThe appellant took over the project only in July, 2002 and afterwards, hespent nearly 5 crores of rupees for the project work. Due to financialconstraints, in February, 2003, a request was made to Tourism FinanceCorporation of India Limited (TFCI) for sanction of a bank guarantee ofRs.40,00,000/- (Rupees forty lakhs only) to get the shipment in questionEcleared from the Customs Department, but for the reasons beyond thecontrol of the Company and the appellant in particular, the shipmentcould not be cleared. A request was made to the Customs authority tohelp the Company to get the goods cleared, in case the clearing agent isunable to take necessary steps on their behalf. In the end, a request wasmade in the reply to grant more time to get the goods cleared and toFsubmit the Bill of Entry (Exchange Control Copy) with the authoriseddealer.

3. The reply to the show-cause notice filed on behalf of theCompany including for the appellant and the submissions made beforethe adjudicating authority were duly considered by the adjudicatingGauthority in its Order (Original) dated 30.12.2004. The adjudicatingauthority concluded that the noticee Company and the appellant hadviolated the provisions of Section 10(6) of the FEMA Act read withSections 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

04 having found that the goods had arrived in India, but the Companyfailed to submit Bill of Entry and did not take delivery of the goods. Theimport formalities would have had completed only after submission ofBill of Entry. Thus, though the goods for which foreign exchange wasremitted had reached the destination of the users, but the same were notreleased and as such kept in bonded warehouse. That resulted incontravention warranting issuance of show-cause notice to the Companyand the appellant. Resultantly, the adjudicating authority passed thefollowing order: - A

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“ORDER

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“ORDER

In view of my above findings, I hold M/s Zoom enterprisesLtd., and their Managing Director Sri Suborno Bose guilty of thecharge. In exercise of powers conferred on me under section13(I) of the Foreign Exchange Management Act, 1999. I imposeon them the following amount of penalty.

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1) M/s Zoom Enterprise Ltd.

Rs.10,00,000/- RupeesDTen LakhsRs.10,00,000/-(RupeesTen Lakhs)

2) Sri Suborno Bose

The penalty amount so imposed in terms of the provisionsof section 13(I) of the said Act shall be deposited in the office ofthe Deputy Director, Directorate of Enforcement, Calcutta bycheques/demand draft issued in favour of the Chief EnforcementOfficer (Admn.), 3[rd] M.S.O. Building, 6[th] floor, C&D Wing, SaltLake, Calcutta 700064 within 45 days from the date of receipt ofthis order.”

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4. The Company, as well as, the appellant carried the matter inappeal before the Special Director (Appeals), FEMA & Commissionerof Income-Tax, Delhi being Appeal Nos. SD(A)/Kol/04/05/112 andSD(A)/Kol/04/05/113. The appellate authority vide order dated 13.6.2005dismissed both the appeals and was pleased to uphold the decision of theadjudicating authority. After adverting to the admitted facts, the appellateauthority proceeded to consider the requirements of the relevantprovisions necessitating submission of Bill of Entry to effectuate theremittance and complete the import of the goods for which the remittancewas made. The appellate authority observed as follows: - G

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SUPREME COURT REPORTS

A“7. As per the provisions of Section 10(6) of FEMA, the foreignexchange acquired from an authorized dealer has to be utilizedfor the purpose it was released or otherwise it should have beensurrendered to the authorized dealer. The Regulation 6(1) in theFEMA (Realisation, Repatriation & Surrender of ForeignExchange) Regulation 2000 issued by RBI on 3.5.2000, prescribeBthat the transaction should be completed within a period of sixtydays from the date of acquisition or purchase of foreign exchange.The RBI has issued a master circular No.7/2004-05 dated 1.7.2004but the Circular No.9 A.P. (DIR Series) (2000-01) issued on24.8.2000 by the RBI, prescribing guidelines for the import ofCgoods/currency, is applicable at the relevant time when theappellant company imported the goods. Certain obligations andrequirements have been prescribed for the purchaser of the foreignexchange in Para A.3 and A.17. As per para A.17 (ii), it is obligatoryon the purchaser of foreign exchange for all imports with valueexceeding US $ 5000, to submit exchange control copy of the billDof entry for home consumption, to the authorized dealer. If suchoriginal bill of entry is not submitted within six months from thedate of remittance the authorized dealer has to report the same tothe RBI.

8. In the present case the foreign exchange was remittedEon 18/4/2000 and 19/6/2000 for import of refrigeratingmachinery, but instead of taking the delivery of the importedgoods, these were warehoused. The management of thecompany as argued by the Ld. Counsel, changed hands inOctober, 2001. As per the requirements of section 10(6) ofFFEMA RBI regulation dt. 3.5.2000 and circular dt.24.8.2000, supra the formalities for import have to becompleted within six months of remittance of foreignexchange. If the appellant is unable to comply with theserequirements under FEMA and the RBI, necessaryapproval of the authorized dealer and the RBI is necessary.GThough the imports were made in 2000 but no steps havebeen taken till 2005 either to take delivery of the goods soimported and warehoused or for taking necessaryextension/approval from RBI/authorized dealer. As far asthe change in management of the company is concerned,Hthe change took place in late 2001 but even after the change

in management, the then Chairman, Sh. Anirudh RaiChoudhary, remained Director of the new company up to2004, as is mentioned in the annual report for the year 2003-04, a copy enclosed with the appeal petition. The ManagingDirector of the changed company was well aware of the goodsso imported and warehoused as a reply were submitted tothe Enforcement Authorities as early as in July, 2002.

9. As far as financial constraints are concerned it is seenfrom the MOU dt. 22.10.2001 that the appellant companywas transferred from the old management to the newmanagement after the shares were transferred for aboutsix crores of rupees. From the annual report for the year2003-04, it is seen that loans of Rs. 7.33 crores were takenand invested a capital work-in-progress shown at Rs. 13.07crores. The company also advanced Rs. 1.20 croresSubstantial investment was made in the capital workincluding air conditioners, furniture and electricalinstallation, etc, etc. In spite of availability of sufficient fundsduring this period the appellant company did not take anystep to take delivery of the imported goods which are lyingin the warehouse since 2000. Note was given in Schedule11 to the annual accounts that the liability against bankguarantee and customs duty in respect of import of airconditioning plant was not provided in the accounts. Thesequence of such events clearly show that the appellantcompany and its Managing Director responsible for runningthe company did not take reasonable steps of delivery ofthe imported goods so warehoused and thereafter to submitbill of entry to the authorized dealer.

10. It is therefore evident that the appellants did not comply withthe requirements of section 10(6) of FEMA, RBI regulationdt. 3.5.2000 and circular dt. 24.8.2000, supra. Even when theshow cause notice was issued by the AA steps were not taken totake delivery of the goods from the warehouse and to submit thebill of entry to the authorized dealer. It is therefore held that theappellant company is guilty of contravening these provisions ofFEMA and guidelines issued by the RBI supra. The AA is justifiedin imposing the penalty at Rs.10 lakhs on the appellant company ABC

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which is confirmed. The appeal filed by the appellant company isaccordingly dismissed.

11. As far as the other appellant is concerned Sh. SubornoBose was the Managing Director and responsible for theconduct of business of the company. He is so guilty ofBcontravention of provisions of FEMA and guidelines of RBIthereof, supra. It is therefore held that AA is justified inimposing the penalty of Rs.10 lakhs on the appellantManaging Director which is confirmed. The appeal filed bythe Managing Director is accordingly dismissed.

12. The Ld. Counsel has referred to certain decisions under Exciseand Custom Act. These cases have not been discussed as theviolation under FEMA and RBI guidelines depends on the factsof each individual case. The appeal being decided on the meritsof the case under consideration.

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D13. It is necessary to mention here that the foreign exchange wasremitted in 2000, the goods were imported in 2000 and werewarehoused in 2000 when Sh. Anirudh Rai Choudhary, was thethen Chairman of the company. He remained Chairman till October,2001 when the management changed as per MOU. Sh. AnirudhRai Choudhary remained Director of the new company till 2004Eas in evident from the annual report for the year 2003-04. As hewas in-charge and was responsible for the conduct of business ofthe company at the time foreign exchange was remitted and goodswere imported, he also seems to be responsible for the violationof provisions of FEMA and RBI guidelines supra. The AA mayFconsider initiation of adjudication proceedings against Sh. AnirudhRai Choudhary.

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14. Since the relevant appeals have been decided their applicationsfor stay have become infructuous. The AA is directed to giveeffect to this order.”

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(emphasis supplied)

5. Being aggrieved, the Company, as well as the appellant carriedthe 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 dismissedby the High Court vide judgment and order dated 17.9.2008. It notedHthe rival submissions and observed thus: - “After hearing the learned Counsel for the parties and after goingthrough the materials on record placed before us, we are of theopinion that the violation which has been done by the appellant/petitioner, cannot be stated to be a technical violation and it iswell-settled law that contravention of the said Act or ForeignExchange Regulation Act, 1973 has created a strict liability. Theviolation of these two Acts would come within the meaning ofeconomic 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 violationcontinues till the time, compliance is made. Therefore, we holdthat taking over the charge of the appellate company in the year2002, cannot absolve the appellant from the liability and, in ourconsidered opinion, the appellant company correctly held as guiltyon the face of the continuance of the offence.

Hence, we are of the considered opinion that the LearnedTribunal correctly came to the conclusion and we do not find thatthere is any reason whatsoever to interfere with the order sopassed by the Learned Tribunal. Accordingly, both the appealsare dismissed.

For the reasons stated hereinabove, both the appeals aredisposed of.”

Against the decision of the High Court, the Company, as well asthe 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 Courtissued notice on the special leave petition being SLP(C) No. 6551/2009filed by the appellant, from which the present appeal has arisen. Theorder reads thus: - “Special Leave Petition (C) No.6897 of 2009 is dismissed.

Keeping in view the contentions raised before us while dismissingS.L.P. (C) No.6897 of 2009, issue notice in S.L.P. (C) No.6551 of2009.”

Resultantly, what remains to be decided in the appeal preferredby the appellant is limited to his argument that the appellant herein couldnot be made liable for the contravention committed by the erstwhilemanagement of the Company.

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A6. We have heard learned counsel for the parties.

7. Be it noted that the contravention relates to the period of theyear 2000, whereas, the appellant took over the management of theCompany in terms of the Memorandum of Understanding dated22.10.2001 entered into in that behalf. The appellant wanted to argueBthat in the facts of the present case, there was no contravention ofSection 10(5) of the FEMA Act or any other provision necessitatingaction under Section 10(6) of the said Act muchless initiating complaintprocedure. Ordinarily, the appellant could have been allowed to pursuesuch argument, but for the dismissal of the special leave petition filed bythe Company. In that, consequent to the dismissal of the petition filed byCthe Company, the finding and conclusion recorded by the adjudicatingauthority as upheld by the first appellate authority, and of the High Courtrecording contravention committed by the Company and for whichcomplaint action was just and proper including the imposition of penaltyas awarded against the Company and the appellant has attained finality.DThat cannot be reopened muchless at the instance of the present appellant.This is reinforced by the order issuing notice on the special leave petitionfiled by the present appellant, dated 30.3.2009. It is indicative of thefact that the contentions specific to absolve the appellant from thecomplaint action could be examined.

E8. In other words, the core issue that needs to be considered inthe present appeal is limited to the defence of the appellant that he couldnot be made responsible for the stated contravention. For, he becamethe 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.-

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(5) An authorised person shall, before undertaking any transactionin foreign exchange on behalf of any person, require that personGto make such declaration and to give such information as willreasonably satisfy him that the transaction will not involve, and isnot designed for the purpose of any contravention or evasion ofthe provisions of this Act or of any rule, regulation, notification,direction or order made thereunder, and where the said personrefuses to comply with any such requirement or makes onlyH

unsatisfactory compliance therewith, the authorised person shallrefuse in writing to undertake the transaction and shall, if he hasreason to believe that any such contravention or evasion asaforesaid is contemplated by the person, report the matter to theReserve Bank.”

(6) Any person, other than an authorised person, who has acquiredor purchased foreign exchange for any purpose mentioned in thedeclaration made by him to authorised person under sub-section(5) does not use it for such purpose or does not surrender it toauthorised person within the specified period or uses the foreignexchange so acquired or purchased for any other purpose forwhich purchase or acquisition of foreign exchange is notpermissible under the provisions of the Act or the rules orregulations or direction or order made thereunder shall be deemedto have committed contravention of the provisions of the Act forthe purpose of this section.”

Additionally, it will be useful to advert to Section 42 of the FEMAAct, which reads thus: - “42. Contravention by companies.—(1) Where a personcommitting a contravention of any of the provisions of this Act orof any rule, direction or order made thereunder is a company,every person who, at the time the contravention was committed,was in charge of, and was responsible to, the company for theconduct of the business of the company as well as the company,shall be deemed to be guilty of the contravention and shall beliable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shallrender any such person liable to punishment if he proves that thecontravention took place without his knowledge or that heexercised all due diligence to prevent such contravention.

(2) Notwithstanding anything contained in sub-section (1), wherea contravention of any of the provisions of this Act or of any rule,direction or order made thereunder has been committed by acompany and it is proved that the contravention has taken placewith the consent or connivance of, or is attributable to any neglecton the part of, any director, manager, secretary or other officer ofthe company, such director, manager, secretary or other officer A

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Ashall also be deemed to be guilty of the contravention and shall beliable to be proceeded against and punished accordingly.

Explanation.—For the purposes of this section—

(i) “company” means any body corporate and includes a firm orother association of individuals; andB

(ii) “director”, in relation to a firm, means a partner in the firm.”

A fair reading of Section 10(5) envisages that the authorised personbefore undertaking any transaction in foreign exchange on behalf of anyperson, must require that person to make a declaration and to give suchCinformation as will reasonably satisfy the authorised person that thetransaction will not involve, and is not designated for the purpose of anycontravention or evasion of the provisions of the FEMA Act or of anyrule, regulation, notification, direction or order made thereunder. If suchsatisfaction is not reached, the authorised person need not proceed withthe proposed transaction and must report about the same to the ReserveDBank.

9. The real provision which needs to be reckoned for answeringthe controversy brought before this Court is Section 10(6) of the FEMAAct. This provision is a deeming provision pointing towards the specifiedcircumstances, which would result in having committed contraventionEof the provisions of the FEMA Act or for the purpose of the statedSection. The specified circumstances are (i) when a person acquires orpurchases foreign exchange for any purpose mentioned in the declarationmade by him to authorised person does not use it for such purpose; (ii)that person does not surrender the acquired or purchased foreignFexchange to authorised person within the specified period, and (iii) theperson uses the acquired or purchased foreign exchange for any otherpurpose for which purchase or acquisition of foreign exchange is notpermissible under the provisions of the FEMA Act or the rules orregulations or direction or order made thereunder. Each of these arestandalone circumstances.G

10. In the present case, the finding of fact is that the import ofgoods for which the foreign exchange was procured and remitted wasnot completed as the Bill of Entry remained to be submitted and thegoods were kept in the bonded warehouse and the Company took nosteps to clear the same. As a result, Section 10(6) of the FEMA Act isHclearly attracted being a case of not using the procured foreign exchange for completing the import procedure. It is also possible to take the viewthat the Company should have taken steps to surrender the foreignexchange to the authorised person within the specified time as providedin Regulation 6 of the Foreign Exchange Management (Realisation,Repatriation and Surrender of Foreign Exchange) Regulations, 2000 (forshort, “the FEMA Regulations”) issued by the Reserve Bank of India.The said regulation reads thus: -

6. Period of surrender in certain cases: - (1) Any person whohas acquired or purchased foreign exchange for any purposementioned in the declaration made by him to an authorised personunder sub-section (5) of section 10 of the Act does not use it forsuch purpose or for any other purpose for which purchase oracquisition of foreign exchange is permissible under the provisionsof the Act or the rules or regulations or direction or order madethereunder, shall surrender such foreign exchange or the unusedportion thereof to an authorised person within a period of sixtydays from the date of its acquisition or purchase by him.

(2) Notwithstanding anything contained in sub-regulation (1), wherethe foreign exchange acquired or purchased by any person froman authorised person is for the purpose of foreign travel, then, theunspent balance of such foreign exchange shall, save as otherwiseprovided in the regulations made under the Act, be surrendered toan authorised person-

(i) . within ninety days from the date of return of the travellerto India, when the unspent foreign exchange is in the form ofcurrency notes and coins; and

(ii) . within one hundred eighty days from the date of return ofthe traveller to India, when the unspent foreign exchange is inthe form of travellers cheques.”

The appellant has placed reliance on the text of Section 42 of theFEMA Act to bolster his argument that only such person who was incharge of the Company at the time the contravention was committed,would be responsible for the action.

11. The High Court has opined that the contravention referred toin Section 10(6) by its very nature is a continuing offence. We agreewith that view. It is indisputable that the penalty provided for suchcontravention is on account of civil obligation under the FEMA Act or AB

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Athe rules or regulations or direction or order made thereunder. If thedelinquency is a civil obligation, the defaulter is obligated to make effortsby payment of the penalty imposed for such contravention. So long asthe imported goods remained uncleared and obligation provided underthe rules and regulations to submit Bill of Entry was not discharged, thecontravention would continue to operate until corrective steps were takenBby 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 thequestion as to whether mens rea is essential for imposing penalty forbreach of civil obligations, the Court adverted to the dictum in DirectorCof Enforcement vs. M.C.T.M. Corporation Pvt. Ltd. & Ors.[2], whichin 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 theDpenalty for a crime or a fine or forfeiture provided as punishmentfor the violation of criminal or penal laws.”

In the same judgment, the Court has also taken note of the decisionin M/s. Gujarat Travancore Agency, Cochin vs. Commissioner ofIncome Tax, Kerala, Ernakulam[3], which had opined that the intentionEof the legislature such as the one under consideration is to emphasisethe fact of loss of revenue and to provide a remedy for such loss, althoughelement of coercion is present in the penalty. In Securities andExchange Board of India vs. Cabot International CapitalCorporation[4], 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 followedin each and every case. The scheme of a particular statute maybe diluted in a given case.G

(C) If, from the scheme, object and words used in the statute, itappears that the proceedings for imposition of the penalty are 1 (2006) 5 SCC 361

2 (1996) 2 SCC 4713 (1989) 3 SCC 52H4 (2005) 123 CompCas 841 (Bom)

adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of thecivil obligation by the offender. The word ‘penalty’ by itself willnot be determinative to conclude the nature of proceedings beingcriminal or quasi-criminal. The relevant considerations being thenature of the functions being discharged by the authority and thedetermination of the liability of the contravenor and the delinquency.

(D) Mens rea is not essential element for imposing penalty forbreach of civil obligations or liabilities.

(E) There can be two distinct liabilities, civil and criminal, underthe same Act.”

As aforementioned, the contravention referred to in Section 10(6)of the FEMA Act is a continuing actionable offence. If so, the Companyand the persons managing the affairs of the Company remain liable totake corrective measures in right earnest. Considering the admitted factthat the appellant took over the management of the Company on22.10.2001 and was fully alive to the default committed by the Company,yet failed to take corrective steps in right earnest. Notably, being consciousof such contravention, the appellant had sought indulgence of theauthorities for more time. It must follow that the appellant cannot nowbe heard to contend that no liability could be fastened on him individually.Indeed, regulation 6 of the FEMA Regulations provides for the periodwithin which the foreign exchange ought to be surrendered if theCompany was not wanting to take delivery of the goods imported. That,however, does not mean that the contravention ceased to exist beyondthe specified period. On the other hand, after the specified period aspredicated in regulation 6 had expired, it would be a case of deemedcontravention until rectified.

12. It is not the case of the appellant that he is not an officer or aperson in charge of and responsible to the Company for the conduct ofthe business of the Company, as well as, the Company on or after22.10.2001. Considering the fact that the appellant admittedly becameaware of the contravention yet failed to take corrective measures untilthe action to impose penalty for such contravention was initiated, hecannot be permitted to invoke the only defence available in terms ofproviso to sub-Section (1) of Section 42 of the FEMA Act that thecontravention took place without his knowledge or that he exercised all AB

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Adue diligence to prevent such contravention. In the reply filed to theshow-cause notice by the appellant, no such specific plea has been taken.

13. The appellant then invited our attention to the reply filed onbehalf of the Company on 27.1.2004 in which it is vaguely asserted thaton the date when the Memorandum of Understanding was signed, noBdisclosure was made that the import was done under EPCG licence andthe obligations under the said licence remained to be fulfilled. To getbenefit of the proviso to Section 42(1), the appellant should have pleadedand proved that the contravention took place without his knowledge orthat he exercised all due diligence to prevent such contravention andmade every effort to rectify the contravention in right earnest.C

14. Be that as it may, once it is held that the contravention is acontinuing offence, the fact that the appellant was not looking after theaffairs of the Company in the year 2000 would be of no avail to theappellant until corrective steps were taken in right earnest after his takingover the management of the Company and in particular after becomingDaware about the contraventions. The appellant has placed reliance onthe dictum of this Court in M/s. Hindustan Steel Ltd. vs. State of Orissa[5].This decision has been distinguished in the case of Shriram (supra) ascan be discerned from paragraph 34 of the reported judgment, whichreads thus: -E“34. The Tribunal has erroneously relied on the judgment inHindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627which pertained to criminal/quasi-criminal proceedings. ThatSection 25 of the Orissa Sales Tax Act which was in question inthe said case imposed a punishment of imprisonment up to sixmonths and fine for the offences under the Act. The said caseFhas no application in the present case which relates to impositionof civil liabilities under the SEBI Act and the Regulations and isnot a criminal/quasi-criminal proceeding.”

We are in agreement with the view so expressed.G15. To sum up, we hold that no error has been committed by theadjudicating authority in finding that the appellant was also liable to beproceeded with for the contravention by the Company of which he becamethe Managing Director and for penalty therefor as prescribed for thecontravention 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 authorityand the High Court justly affirmed the view so taken by the adjudicatingauthority.

16. Accordingly, this appeal fails and the same is dismissed withno order as to costs.

Divya Pandey

Appeal dismissed.

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