# SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, ENFORCEMENT DIRECTORATE

- **Citation:** [2020] 7 S.C.R. 89
- **Court:** Supreme Court of India
- **Decided:** 2020-07-27
- **Case number:** Criminal Appeal No. 2463 of 2014
- **Bench:** Ashok Bhushan, R. Subhash Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shailendra-swarup-v-the-deputy-director-enforcement-directorate-34726
- **Pages:** 28

## Headnote

Foreign Exchange Regulation Act, 1973:
ss.8(3), 8(4), 50, 51 and 68 - Show cause notice for initiation
for proceedings u/s. 51 against Company and its Directors for
contravention of ss. 8(3) r/w 8(4) and 68 - Reply by the Company -
Initiation of proceedings - Appellant (one of the Directors) replied
that he was a part-time, non-executive Director and was not
responsible for the conduct of business of the Company at the relevant
time - Penalty imposed by Enforcement Directorate - Appeal before
Appellate Tribunal for Foreign Exchange dismissed - High Court
also dismissed the appeal - Appeal to Supreme Court - Held: The
liability to proceed with for the offence u/s. 68 depends on the role
played in the affairs of the Company and not on mere designation
or status - For proceeding against Director of a Company for
contravention of provisions of the Act, the necessary ingredient for
proceeding shall be that the Director was incharge of and was
responsible for the conduct of the business of the Company at the
relevant time - Penalty was imposed on the appellant-Director
without returning a finding that it was he who was liable for
contravention of the provisions of ss. 8(3), 8(4) and 68 - Therefore,
the penalty imposed on the appellant is set aside.
Allowing the appeal, the Court
HELD: 1. The High Court committed error in observing
that plea taken by the appellant in its reply dated 29.10.2003 was
afterthought, since, no such plea was taken in reply to the show
cause notice dated 19.02.2001. The notice dated 19.02.2001
although was addressed to the Company and all its Directors,
the reply was given only by the Company Secretary and none of
the Directors has given any reply. The notice dated 19.02.2001
was issued by the Deputy Director, Enforcement Directorate to
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decide as to whether the adjudication proceedings as
contemplated in Section 51, of Foreign Exchange Regulation Act,
1973 (FERA, 1973) should be held against the Directors for
contravention. When the Deputy Director decided to hold the
adjudication proceedings under Section 51 reply given in response
to the notice dated 08.10.2003 was statutorily required to be
considered under Section 51 and the said reply could not have
been ignored or knocked down by an erroneous assumption that
it was an afterthought. 29.10.2003 was the date fixed by the
adjudicating officer for personal hearing of the Directors. The
appellant had not submitted any reply to show cause notice dated
19.02.2001 which though was addressed to the Company and all
Directors and the reply was sent only by the Company Secretary
on 26.03.2001. The representation dated 29.10.2003 was the first
representation submitted by the appellant before the adjudicating
officer during course of personal hearing. What is said by a person
who is called for personal hearing even though given in the form
of written representation dated 29.10.2003 required to be
considered by the adjudicating officer otherwise the personal
hearing shall become an empty formality and meaningless,
specially when what was said by the appellant in his representation
dated 29.10.2003 in no manner contradicted the reply 26.03.2001
sent by the Company Secretary. Thus, the written representation
dated 29.10.2003 submitted by appellant required due
consideration and the High Court erred in discarding it as an
afterthought. [Para 16][101-G-H; 102-A-E]
2. The view of the High Court that the affidavit dated
04.07.2003 of the Company Secretary had not been filed either
before the Adjudicating Authority or the Appellate Tribunal nor
any such plea was taken in the earlier communications is neither
correct nor based on materials on the record. The adjudicating
officer in its order dated 31.03.2004 has noted the reply dated
29.10.2003 on behalf of the appellant. The reply dated 29.10.2003
has been brought on the record of the paper book as Annexure
P-4. In paragraph 10(1) of the reply da

## Text

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SHAILENDRA SWARUP
v.
THE DEPUTY DIRECTOR, ENFORCEMENT DIRECTORATE
(Criminal Appeal No. 2463 of 2014)
JULY 27, 2020
[ASHOK BHUSHAN AND R. SUBHASH REDDY, JJ.]
Foreign Exchange Regulation Act, 1973:
ss.8(3), 8(4), 50, 51 and 68 - Show cause notice for initiation
for proceedings u/s. 51 against Company and its Directors for
contravention of ss. 8(3) r/w 8(4) and 68 - Reply by the Company -
Initiation of proceedings - Appellant (one of the Directors) replied
that he was a part-time, non-executive Director and was not
responsible for the conduct of business of the Company at the relevant
time - Penalty imposed by Enforcement Directorate - Appeal before
Appellate Tribunal for Foreign Exchange dismissed - High Court
also dismissed the appeal - Appeal to Supreme Court - Held: The
liability to proceed with for the offence u/s. 68 depends on the role
played in the affairs of the Company and not on mere designation
or status - For proceeding against Director of a Company for
contravention of provisions of the Act, the necessary ingredient for
proceeding shall be that the Director was incharge of and was
responsible for the conduct of the business of the Company at the
relevant time - Penalty was imposed on the appellant-Director
without returning a finding that it was he who was liable for
contravention of the provisions of ss. 8(3), 8(4) and 68 - Therefore,
the penalty imposed on the appellant is set aside.
Allowing the appeal, the Court
HELD: 1. The High Court committed error in observing
that plea taken by the appellant in its reply dated 29.10.2003 was
afterthought, since, no such plea was taken in reply to the show
cause notice dated 19.02.2001. The notice dated 19.02.2001
although was addressed to the Company and all its Directors,
the reply was given only by the Company Secretary and none of
the Directors has given any reply. The notice dated 19.02.2001
was issued by the Deputy Director, Enforcement Directorate to
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decide as to whether the adjudication proceedings as
contemplated in Section 51, of Foreign Exchange Regulation Act,
1973 (FERA, 1973) should be held against the Directors for
contravention. When the Deputy Director decided to hold the
adjudication proceedings under Section 51 reply given in response
to the notice dated 08.10.2003 was statutorily required to be
considered under Section 51 and the said reply could not have
been ignored or knocked down by an erroneous assumption that
it was an afterthought. 29.10.2003 was the date fixed by the
adjudicating officer for personal hearing of the Directors. The
appellant had not submitted any reply to show cause notice dated
19.02.2001 which though was addressed to the Company and all
Directors and the reply was sent only by the Company Secretary
on 26.03.2001. The representation dated 29.10.2003 was the first
representation submitted by the appellant before the adjudicating
officer during course of personal hearing. What is said by a person
who is called for personal hearing even though given in the form
of written representation dated 29.10.2003 required to be
considered by the adjudicating officer otherwise the personal
hearing shall become an empty formality and meaningless,
specially when what was said by the appellant in his representation
dated 29.10.2003 in no manner contradicted the reply 26.03.2001
sent by the Company Secretary. Thus, the written representation
dated 29.10.2003 submitted by appellant required due
consideration and the High Court erred in discarding it as an
afterthought. [Para 16][101-G-H; 102-A-E]
2. The view of the High Court that the affidavit dated
04.07.2003 of the Company Secretary had not been filed either
before the Adjudicating Authority or the Appellate Tribunal nor
any such plea was taken in the earlier communications is neither
correct nor based on materials on the record. The adjudicating
officer in its order dated 31.03.2004 has noted the reply dated
29.10.2003 on behalf of the appellant. The reply dated 29.10.2003
has been brought on the record of the paper book as Annexure
P-4. In paragraph 10(1) of the reply dated 29.10.2003, the affidavit
filed by the Company Secretary has been relied which was also
enclosed with the reply as Annexure "C". Thus, the affidavit of
Company Secretary dated 04.07.2003 clearly stating that the
appellant who was Director of the erstwhile Company was only a
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part time Director of the said Company and was never in charge
of the day to day business of the Company was very much on the
record of the adjudicating officer. Thus, the material was brought
by the appellant on the record that he was a part-time, nonexecutive Director not in charge of the affairs of the Company at
the relevant time, which was erroneously refused to be considered.
[Paras 17-20 & 22][102-F; 103-A-B; 104-A-B, D]
3.1 The adjudicating officer has imposed the penalty without
returning a finding that it was the appellant who was liable for
contravention of the provisions of Section 8(3), 8(4) and Section
68 of the FERA, 1973. No finding has been returned by the
Appellate Tribunal that the appellant was not a part-time, nonexecutive Director and was responsible for the conduct of business
of the Company at the relevant time. The order of the adjudicating
officer, thus, is unsustainable. The Appellate Tribunal has also
not considered the plea of the appellant and by making general
observation that management of the Company is to be handled
by the Board of Directors, hence, the appellant being Director is
held guilty. [Paras 25-26][106-F-G]
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and
Another, (2005) 8 SCC 89 : [2005] 3 Suppl. SCR 371 -
relied on.
3.2 Section 68 of FERA, 1973 deals with "Offences by
companies". Section 68(1) creates a legal fiction, i.e., "shall be
deemed to be guilty". The legal fiction triggers on fulfilment of
conditions as contained in the section. The words "every person
who, at the time of the contravention was committed, was in
charge of, and was responsible to, the company for the conduct of
business" has to be given some meaning and purpose. The
provision cannot be read to mean that whosoever was a Director
of a company at the relevant time when contravention took place,
shall be deemed to be guilty of the contravention. Had the
legislature intended that all the Directors irrespective of their
role and responsibilities shall be deemed to be guilty of
contravention, the section could have been worded in different
manner. When a person is proceeded with for committing an
offence and is to be punished, necessary ingredients of the offence
as required by Section 68 should be present. For proceeding
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE
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against a Director of a company for contravention of provisions
of FERA, 1973, the necessary ingredient for proceeding shall be
that at the time offence was committed, the Director was in charge
of and was responsible to the company for the conduct of the
business of the company. The liability to be proceeded with for
offence under Section 68 of FERA, 1973 depends on the role
one plays in the affairs of the company and not on mere designation
or status. [Paras 37-38][113-E-H; 114-D-E]
N. K. Wahi v. Shekhar Singh and others (2007) 9 SCC
481 : [2007] 3 SCR 883; National Small Industries
Corporation Limited v. Harmeet Singh Paintal and
another (2010) 3 SCC 330 : [2010] 2 SCR 805; Pooja
Ravinder Devidasani v. State of Maharashtra and
Another (2014) 16 SCC 1 : [2014] 14 SCR 1468;
National Small Industries Corporation Limited v.
Harmeet Singh Paintal and Another (2010) 3 SCC 330:
[2010] 2 SCR 805 - relied on.
N. Rangachari v. Bharat Sanchar Nigam Ltd. (2007) 5
SCC 108 : [2007] 5 SCR 329 - distinguished.
3.3 In FERA, 1973 for imposing a penalty under Section
50, the adjudicating officer is required to hold an enquiry after
giving the person a reasonable opportunity for making a
representation in the matter. Even though, FERA, 1973 does not
contemplate filing of a written complaint but in proceedings as
contemplated by Section 51, the person, who has to be proceeded
with has to be informed of the contravention for which penalty
proceedings are initiated. The expression "after giving that
person a reasonable opportunity for making a representation in
the matter" as occurring in Section 51 itself contemplates due
communication of the allegations of contravention and unless
allegations contains complete ingredients of offence within the
meaning of Section 68, it cannot be said that a reasonable
opportunity for making a representation in the matter has been
given to the person, who is to be proceeded with. [Para 39]
[114-F-H; 115-A]
3.4 It is correct that FERA, 1973 does not contemplate
any complaint but the Scheme of the Act indicates that a person,
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who is to be proceeded with, has to be made aware of the necessary
allegations, which may constitute an offence on his part. A person
in the commercial world having a transaction with company is
entitled to presume that the Directors of the company are in
charge of the affairs of the company. But the presumption of a
person in the commercial world is a rebuttable presumption and
when adjudicating authority proceeds to impose a penalty for a
contravention of FERA, 1973, essential ingredients constituting
an offence under the FERA read with Section 68 has to be
communicated to the person proceeded with to enable him to
make effective representation in the matter. [Para 40][115-B-C]
3.5 An order which was passed on 13.02.2004 by the Deputy
Director in adjudication proceedings although with regard to
different period, the plea of the appellant that he was only a parttime, non-executive Director and not responsible of the conduct
of business of the Company was accepted and notice was
discharged against the appellant. The order dated 13.02.2004
although related to different period but has categorically noticed
the status of the appellant as part-time non-executive Director.
There being decision of Adjudicating Authority, in the recent past,
passed on 13.02.2004, that the appellant was only a part-time nonexecutive Director of MXL, there has to be some reasons for
taking a contrary view by the adjudicating officer in order dated
31.03.2004 with regard to affairs of the same company. [Para
42][115-F-H; 116-A]
4. Therefore, the adjudicating officer has erroneously
imposed penalty on the appellant for the alleged offence under
Section 8(3), 8(4) and 68 of the FERA, 1973 which order was
erroneously affirmed both by the Appellate Tribunal and the High
Court. [Para 43][116-B]
Case Law Reference
[2005] 3 Suppl. SCR 371
relied on
Para 27
[2007] 3 SCR 883
relied on
Para 31
[2010] 2 SCR 805
relied on
Para 31
[2014] 14 SCR 1468
relied on
Para 31
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE
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[2007] 5 SCR 329
distinguished
Para 32
[2010] 2 SCR 805
relied on
Para 35
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
2463 of 2014.
From the Judgment and Order dated 18.11.2009 of the High Court
of Delhi at New Delhi in Crl. A. No. 575 of 2008.
C.A. Sundaram, Kailash Vasdev, Sr. Advs., Ms. Rohini Musa,
Jagjit Singh Chhabra, Saksham Maheshwari, Abhishek Gupta, Advs. for
the Appellant.
K.M. Nataraj, ASG, Ms. Shirin Khajuria, Ms. Ranjana Narayan,
B. Krishna Prasad, Advs. for the Respondent.
The Judgment of the Court was delivered by
ASHOK BHUSHAN, J.
1. This appeal has been filed against the judgment of Delhi High
Court dated 18.11.2009 dismissing the Criminal Appeal filed by the
appellant by which appeal the judgment dated 26.03.2008 of the Appellate
Tribunal for Foreign Exchange in Appeal No.622 of 2004 filed by the
appellant was challenged.
2. Brief facts of the case giving rise to this appeal are:
2.1 Modi Xerox Ltd.(MXL) was a Company registered under the
Companies Act, 1956 in the year 1983. Between the period 12.06.198521.11.1985, 20 remittances were made by the Company-MXL through
its banker Standard Chartered Bank. The Reserve Bank of India issued
a letter stating that despite reminder issued by the Authorised Dealer,
MXL had not submitted the Exchange Control copy of the custom bills
of Entry/Postal Wrappers as evidence of import of goods into India.
Enforcement Directorate wrote to MXL in the year 1991-1993 for
supplying invoices as well as purchase orders. MXL on 09.07.1993
provided for four transactions and Chartered Accountant's Certificates
for balance 16 amounts for which MXL's Bankers were unable to trace
old records dating back to 1985. MXL amalgamated and merged into
Xerox Modicorp Ltd. (hereinafter referred to as "XMC") on 10.01.2000.
A show cause notice dated 19.02.2001 was issued by the Deputy
Director, Enforcement Directorate to MXL and its Directors, including
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the appellant. The show cause notice required to show cause in writing
as to why adjudication proceedings as contemplated in Section 51 of
Foreign Exchange Regulation Act, 1973 (hereinafter referred to as
"FERA, 1973") should not be held for contravention. Xerox Modi
Corporation Ltd. (successor of MXL) replied the show cause notice
dated 19.02.2001 vide its letter dated 26.03.2001. The Directorate of
Enforcement decided to hold proceedings as contemplated in Section 51
of the FERA, 1973 read with Section 3 and 4 of Section 49 of FEMA
and fixed 22.10.2003 for personal hearing. Notice dated 08.10.2003 was
sent to MXL and its Directors. Notice dated 08.10.2003 was replied by
the appellant vide its detailed reply dated 29.10.2003. In the reply the
appellant stated that he is a practicing Advocate of the Supreme Court
and was only a part-time, non-executive Director of MXL and he was
never in the employment of the Company nor had executive role in the
functions of the Company. It was further stated that the appellant was
never incharge of nor ever responsible for the conduct of business of
the Company. Along with the reply an affidavit of the Company Secretary
dated 04.07.2003 that the appellant who was the Director of erstwhile
Company-XML was only a part-time, Director of the said Company and
never incharge of day to day business of the Company was also filed.
The MXL has also submitted a reply dated 29.10.2003. The Deputy
Director, Enforcement Directorate after hearing the appellant, other
Directors of the Company passed an order dated 31.03.2004 imposing a
penalty of Rs.1,00,000/- on the appellant for contravention of Section
8(3) read with 8(4) and Section 68 of FERA, 1973.
2.2 Aggrieved by the order dated 31.03.2004 imposing penalty of
Rs.1,00,000/- on the appellant, Appeal No.622 of 2004 was filed by the
appellant before the Appellate Tribunal for Foreign Exchange which
appeal came to be dismissed by the Appellate Tribunal on 26.03.2008.
Against the order of the Appellate Tribunal dated 26.03.2008, Criminal
Appeal No.575 of 2008 was filed by the appellant in Delhi High. The
Delhi High Court by the impugned judgment dated 18.11.2009 has
dismissed the appeal of the appellant, questioning which judgment this
appeal has been filed.
3. The High Court, in Criminal Appeal, during pendency of the
appeal has stayed the order of penalty. This Court while issuing notice
on 19.02.2010 in the present appeal had also stayed the order of penalty
imposed on the appellant.
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]
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4. We have heard Shri C.A. Sundaram, learned senior counsel
for the appellant and Shri K.M. Nataraj, learned Additional Solicitor
General for the respondent.
5. Shri C.A. Sundaram, learned senior counsel for the appellant
submits that the High Court dismissed the appeal of the appellant holding
that reply dated 29.10.2003 of the appellant taking the plea that he was
only a part-time Director was only an afterthought. The High Court
further held that the affidavit dated 04.07.2003 of the Company Secretary
relied by the appellant does not appear to have been filed either before
the Adjudicating Authority or the Appellate Tribunal and no such plea
had been taken in the earlier communications. Shri Sundaram submits
that the High Court committed error in dismissing the appeal of the
appellant whereas neither there was any material nor any specific case
of the Department that the appellant was incharge of and responsible
for the conduct of business of the Company. The mere fact of CompanyMXL in its reply to the notice dated 19.02.2001 having given the names
of the 13 persons as Directors of MXL does not amount to stating that
all the Directors were responsible for the conduct of business of the
Company. The appellant could have been prosecuted and punished for
the contravention of the provisions of FERA, 1973 only after returning a
finding that it was the appellant who was responsible for the conduct of
business during the relevant period when remittances in question were
made by MXL. The Appellate Tribunal without recording any finding
that appellant was incharge of the affairs of the Company held the
appellant liable, observing that there is nothing on record to show that
any restriction was placed on the powers of the appellants as Directors
of the Company with reference to subject transactions. The Adjudicating
Authority although noticed the detailed reply given by the appellant dated
29.10.2003 but without returning any finding that the appellant was
Director who was responsible for working of MXL at the relevant time
imposed the penalty only relying on the letter of the Company Secretary
where names of the persons who were in the Board of Directors were
mentioned.
6. Shri Sundaram further submits that with regard to a subsequent
transaction, proceedings were initiated against the appellant in respect
to transaction of MXL where the plea of the appellant that he was only
a part-time, non-executive Director and had no executive role or function
in the Company was accepted and proceedings were dropped insofar as
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the appellant is concerned by order dated 13.02.2004 which order clearly
noticed the status and role of the appellant.
7. Learned Additional Solicitor General refuting the submissions
of the counsel for the appellant contends that penalty has rightly been
imposed on the appellant. He submits that admittedly the appellant was
Director during the relevant period which fact was admitted too in the
reply given to the show cause notice. The show cause notice was issued
against all the Directors including the appellant and no effort has been
made by the appellant to disprove the allegations made against him.
Learned Additional Solicitor General submits that there needs no specific
complaint in proceedings of FERA, 1973 as opposed to complaint under
Negotiable Instruments Act. When the proceedings have been initiated
under Section 51 of the FERA, 1973, the burden is on the appellant to
prove that he had no role to play on behalf of the Company.
8. Learned counsel for the parties have placed reliance on few
decisions of this Court which shall be referred to while considering the
submissions of the parties in detail.
9. From the submissions made by the parties and materials on
records following points arise for determination in this appeal:
(1)
Whether the plea taken by the appellant in its reply dated
29.10.2003 that he was only a part-time, non-executive
Director and was never incharge of nor even responsible
for the conduct of business of the Company at the relevant
time was an afterthought, since, in the reply given by the
Company Secretary dated 26.03.2001 no such plea was
taken?
(2)
Whether the appellant has not brought any material on record
either before the Adjudicating Authority or the Appellate
Tribunal to prove that he was only a part-time, non-executive
Director not responsible for the conduct of business of the
Company at the time of commission of the offence?
(3)
Whether the Adjudicating Authority, Appellate Tribunal and
the High Court erred in holding contravention of provisions
of Section 8(3), 8(4) and Section 68 of FERA, 1973 by the
appellant without their being any material that the appellant
was responsible for the conduct of business of the Company
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]
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at the time of commission of the offence and without
recording any specific findings to that effect?
POINT NO.1
10. As noted above, the High Court has rejected the plea of the
appellant that he was part-time, non-executive Director not responsible
for the conduct of business of the Company at the relevant period on the
ground that the above plea is an afterthought since in reply given by the
Company Secretary to show cause notice dated 19.02.2001 no such
plea was taken.
11. We may first notice the show cause notice dated 19.02.2001.
The show cause notice dated 19.02.2001 was given to the MXL and all
Directors of MXL and along with show cause notice Annexure 'B' was
a list of Directors of MXL where the name of the appellant was also
included at Serial No.12. It is relevant to notice following portion of the
show cause notice:
"AND WHEREAS it further appears that S/Shri - As per
Annexure B Proprietor, Partner(s)/Manager/Secretary of the said
company/firm has been responsible/supervisor/ incharge of the
said company/firm for the conduct of business of the company/
firm at the relevant time when the aforesaid import was made as
such he/she/they has/have rendered himself/herself/themselves
liable also to be proceeded against under Section 50 of the Foreign
Exchange Regulation Act, 1973 (46 of 1973).
NOW THEREFORE, the said M/s Modi Xerox Ltd. as well as
its Directors of the above address are hereby required to show
cause in writing (in duplicate) within thirty days from the date of
receipt of this Memorandum as to why adjudication proceedings
as contemplated in Section 51 of the Foreign Exchange Regulation
Act, 1973 (46 of 1973) should not be held against them for the
aforesaid contravention."
12. The show cause notice, thus, asked the Directors to show
cause as to why adjudication proceedings as contemplated in Section 51
of the FERA, 1973 should not be held against them. The reply to the said
notice was sent only by the Company through Acting Company Secretary
dated 26.03.2001. The Deputy Director, Enforcement Directorate after
considering the reply to show cause by XMC's vide letter dated
26.03.2001 decided to hold adjudication proceedings as contemplated in
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Section 51 of FERA, 1973. Adjudication notice dated 08.10.2003 was
issued by Deputy Director, Enforcement asking the Directors to appear
for personal hearing on 22.10.2003. It is relevant to reproduce the contents
of the notice dated 08.10.2003 which are to the following effect:
"DIRECTORATE OF ENFORCEMENT
FOREIGN EXCHANGE MANZMENTNT
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
GOVERNMENT OF NDIA
HEAD QUARTERS OFFICE,
6TH FLOOR LOK NAYAK BHAWAN,
KHAN MARKET NEW DELHI -110 003.
F.NO.T4.2O/DZ/2001/DD(AV)VM/4571 DATE 8/10/2003
From
The Deputy Director of Enforcement
To
M/s Modi Xerox Ltd.
Ground Floor, Hemkunt Tower,
98 Nehru Place,
N. Delhi -19
And its Directors [As per fist attached].
Dear Sir /Madam,
Subject: Adjudication proceedings in respect of Memo No. T-4/
20/D2/2001 (SCN.) Dated 19/2/2001
This is to inform you that after considering the cause shown by
you in/as you have failed to reply to the above mentioned
memorandum the Deputy Director of Enforcement is of the opinion
the Adjudication proceeding as contemplated in Section 51 of
FERA, 1973 read with Section 3 & 4 of section 49 of FEMA,
1999 should be held against you in accordance with the procedure
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]
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laid shown in Rules of the Adjudication Proceedings & Appeal
Rules, 1974 and has accordingly fixed this case for personal
hearing before him on 22 Oct. 2003 [22nd OCT. 2003] at 12:30
pm in the office of this Directorate at the above mentioned address.
Now, therefore, you are hereby given an opportunity to present
yourself either personally or through your lawyer or other
authorised representative before the Deputy Director of
Enforcement for personal hearing on the aforesaid date, time and
place.
You may please note that in case you fail to appear before the
Adjudication Authority on the aforesaid date he may proceed with
the enquiry in your absence and pass Adjudication Order on the
basis of material and evidence available to him.
Your attention in this connection is invited to the provisions to
Rule 3 of the Adjudication Proceedings & Appeal Rules, 1974
read with section 3 & 4 of section 49 of FEMA ,1999 whereby in
case it is decided to hold Adjudication Proceedings personal hearing
of the case could be waived at your request. In case you prefer to
waive personal hearing you may intimate accordingly so that the
case may be decided without your personal attendance on the
basis of available evidence.
Yours faithfully,
Sd/-
For Deputy Director"
13. We may also notice the provisions of Section 51 of FERA,
1973, which is to the following effect:-
"Section 51. Power to adjudicate.-For the purpose of adjudging
under section 50 whether any person has committed a
contravention of any of the provisions of this Act (other than those
referred to in that section) or of any rule, direction or order made
thereunder, the adjudicating officer shall hold an inquiry in the
prescribed manner after giving that person a reasonable
opportunity for making a representation in the matter and if, on
such inquiry, he is satisfied that the person has committed the
contravention, he may impose such penalty as he thinks fit in
accordance with the provisions of that section."
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14. The provisions of Section 51 as noted above oblige the
adjudicating officer to hold an inquiry in the prescribed manner after
giving that person a reasonable opportunity for making a representation
in the matter.
15. When notice dated 08.10.2003 was given for adjudication
proceedings it was obligatory for the adjudicating officer to give
opportunity for making representation. In response to the notice dated
08.10.2003 the appellant has submitted a detailed reply dated 29.10.2003.
In his reply the appellant apart from other facts stated following:
"1. The undersigned is a practicing Advocate of the Hon'ble
Supreme Court of India and was only a part-time, non-executive
Director of erstwhile Modi Xerox Limited and was never in its
employment nor ever had any executive role or function in the
said Company. Further the undersigned was never in charge of
nor ever responsible for the conduct of the business of the Company
MXL nor did the Noticee ever had any executive role or function
in the company.
2. The undersigned Noticee had not at any stage been involved in
any discussions or decisions relating to the import by the said
Company and never issued any instructions to any banker or any
other functionary of MXL to get any remittance affected out of
India for any import.
3. The Notices was neither in charge of nor ever responsible for
conduct of the day to day business of MXL."
16. The representation dated 29.10.2003 was, thus, first
representation submitted by the appellant in response to adjudication
notice and the plea taken by the appellant that he was only a part-time,
non-executive Director of erstwhile MXL and was never incharge of
nor even responsible for the conduct of business of the Company was
the plea taken first time by the appellant and could not have been termed
either as afterthought or denied consideration. The High Court committed
error in observing that plea taken by the appellant in its reply dated
29.10.2003 was afterthought, since, no such plea was taken in reply to
the show cause notice dated 19.02.2001. As noted above the notice
dated 19.02.2001 although was addressed to the Company and all its
Directors, the reply was given only by the Company Secretary and none
of the Directors has given any reply. The notice dated 19.02.2001 was
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]
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issued by the Deputy Director, Enforcement Directorate to decide as to
whether the adjudication proceedings as contemplated in Section 51
should be held against the Directors for contravention. When the Deputy
Director decided to hold the adjudication proceedings under Section 51
reply given in response to the notice dated 08.10.2003 was statutorily
required to be considered under Section 51 and the said reply could not
have been ignored or knocked down by an erroneous assumption that it
was an afterthought as has been done by the High Court. 29.10.2003
was the date fixed by the adjudicating officer for personal hearing of the
Directors. The appellant had not submitted any reply to show cause
notice dated 19.02.2001 which though was addressed to the Company
and all Directors and the reply was sent only by the Company Secretary
on 26.03.2001. The representation dated 29.10.2003 was the first
representation submitted by the appellant before the adjudicating officer
during course of personal hearing. What is said by a person who is
called for personal hearing even though given in the form of written
representation dated 29.10.2003 required to be considered by the
adjudicating officer otherwise the personal hearing shall become an empty
formality and meaningless, specially when what was said by the appellant
in his representation dated 29.10.2003 in no manner contradicted the
reply 26.03.2001 sent by the Company Secretary. We, thus, are of the
considered opinion that written representation dated 29.10.2003 submitted
by appellant required due consideration and the High Court erred in
discarding it as an afterthought.
POINT NO.2
17. We may further note that the High Court in its judgment has
observed that affidavit relied upon by the appellant dated 04.07.2003 of
the Company Secretary had not been filed either before the Adjudicating
Authority or the Appellate Tribunal nor any such plea was taken in the
earlier communications. This has been observed in paragraph 17 of the
impugned judgment, which is to the following effect:
"17. It was only as an afterthought and later on that the petitioner
in his subsequent reply dated 29.10.2003 took up a plea that he
was only a part time director and relied upon an affidavit dated
4.7.2003 of the Company Secretary Mukesh Dugar which even
otherwise does not appear to have been filed either before the
Adjudicating Authority or the Appellate Tribunal. No such plea
had been taken in any of the earlier communications."
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18. The above view of the High Court is neither correct nor based
on materials on the record.
19. The adjudicating officer in its order dated 31.03.2004 has noted
the reply dated 29.10.2003 on behalf of the appellant. The reply dated
29.10.2003 has been brought on the record of the paper book as Annexure
P-4. In paragraph 10(1) of the reply dated 29.10.2003, the affidavit filed
by the Company Secretary has been relied which was also enclosed
with the reply as Annexure "C". Affidavit of the Company Secretary
dated 04.07.2003 which was enclosed with the reply was to the following
effect:
"AFFIDAVIT
I, Mukesh Dugar son of Sh. S.R. Dugar and presently the
Company Secretary & Head - Legal of Xerox Modicorp Limited
having its registered office at 109, Shivalik Apartments, Sector 3,
Noida, Distt. Gautam Budh Nagar, Uttar Pradesh do hereby
solemnly affirm and state as follows:
1. That Modi Xerox Limited has since been merged into Xerox
Modicorp Limited vide orders dated 10.01.2000 and 21.01.2000
of Hon'ble Allahabad High Court.
2. That Mr. Shailendra Swarup, who was a Director of the
erstwhile Modi Xerox Limited was only a part time Director
of the said Company and was never in charge of the day to
day business of the Company.
Place Gurgaon
 Sd/-
Date 4/7/2003
 DEPONENT
VERIFICATION
Verified that the contents of this affidavit are true to the best of
my knowledge and no part of it is false and nothing material has
been concealed therein.
Signed and verified at Gurgaon on this 4th day of July, 2003.
DEPONENT"
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]
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20. Thus, the affidavit of Company Secretary dated 04.07.2003
clearly stating that the appellant who was Director of the erstwhile MXL
was only a part time Director of the said Company and was never in
charge of the day to day business of the Company was very much on
the record of the adjudicating officer and the High Court erred in holding
that the said material was not filed before the Adjudging Authority or the
Appellate Tribunal.
21. The High Court, thus, discarded the plea of the appellant that
he was part-time, non-executive Director as afterthought and did not
consider the same on the ground that the affidavit dated 04.07.2003
relied by the appellant was not filed which, as noted above, is not correct.
There was nothing on record brought on behalf of the Department that
the above plea of the appellant was incorrect and it was the appellant
who was responsible for the conduct of business of the Company at the
relevant time.
22. We, thus, are of the view that the material was brought by the
appellant on the record that he was a part-time, non-executive Director
not incharge of the affairs of the Company at the relevant time, which
was erroneously refused to be considered.
POINT NO.3
23. The Adjudicating Authority has in its order dated 31.03.2004
noted the reply dated 29.10.2003 filed on behalf of the appellant and
Adjudicating Authority has extracted several paragraphs of the reply of
the appellant. Paragraph 10 of the reply has been extensively quoted by
the Adjudicating Authority specially sub-paragraph (1), (2) and (3) which
are to the following effect:
"10 It is prayed that the proceedings initiated may kindly be dropped
on the following amongst other main grounds, which are set out
hereinafter without prejudice to one another and are in addition to
the facts and submission set forth hereinabove
(1) That the Notice was a decorative part time non-executive
Director and the Board Meetings attended by him have only
been in his capacity as a part-time non-executive Director
and not in any other capacity. The Noticee was never in the
employment of the company and never ever had nay executive
role or function in the Company. A copy of the Affidavit filed
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by the noticee with his reply to Show Cause Notice No.T-4/
337/DZ/2002 dated 28.05.2002 of the Company Secretary of
XMC at the time to its swearing confirming that the Noticee
was only a part-time Director of MXL and was never in charge
of the day to day business of MXL is enclosed herewith and
marked as Annexure - 'C'. This Notice has been never
engaged in day to day conduct of the business of MXL. He
has never entered into any import agreement. He has never
issued any instructions to any person or the bank for causing
any remittance abroad and as such he is not responsible for
liable at all in any manner.
(2) It is respectfully submitted that the documents enclosed with
MXL's reply of 04.12.1991, 25.12.1991, 25.12.1991 and
09.07.1993 and XMC's reply dated 26.03.2001 will establish
that goods have been imported against the remittances
mentioned in the Annexure and they had been duly reported
to Reserve Bank of India and there is no evidence of goods
not having been imported.
(3) This Noticee was never in charge of the day to day business
of MXL and had no knowledge of the transactions in respect
of which the above referred Show Cause Notice dated
08.10.2003 had been issued much less any intent or knowledge
of alleged contraventions as set forth therein. The certificates
of compliances given by MXL management to the Board
prove and establish that the contraventions alleged in the above
referred Notice and the subject Memorandum, in any view
of the matter if occurred, were without the knowledge and
had nothing to do with the transactions in question, the question
of this Noticee committing consciously or deliberately any
contravention of the FERA or any other law or regulations
does not arise and no penalty can in law be imposed on this
Noticee. The adjudication proceedings are otherwise not
maintainable in law."
24. After noticing the above plea of the appellant, the Adjudicating
Authority has noticed that letter dated 26.03.2001 of the Company
Secretary where he has given the names of 13 Directors and after noticing
the aforesaid 13 Directors the Adjudicating Authority has recorded its
conclusion in following words:
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR,
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]
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"I have also gone through the replies received from other directors
and found that they were not responsible for day to day activities
of the company and were not the Directors during the relevant
period which was between 12.06.1985 to 21.11.1985 and they
were the nominees of IFCI, GIC, ICICI, UTI and IDBI
respectively, hence, I drop the charges against the Directors except
S/Sh. Bhupinder Kumar Modi, Umesh Kumar Modi, John Rodger
Miligan, James Campbell White and Shailendra Swarup who were
Directors at relevant time and responsible for working of the M/
s Modi Xerox Ltd.,I hereby find them guilty and impose a penalty
of Rs.1,00,000/- (Rupees One Lakh only) each on S/Sh. Bhupinder
Kumar Modi, Umesh Kumar Modi, John Rodger Miligan, James
Campbell White and Shailendra Swarup and Rs.5,00,000/- (Rupees
Five Lakhs only) on M/s Modi Xerox Ltd. for contravention of
Section 8(3) read with Section 8(4) and Section 68 of FERA,
1973, I also find the other directors were not joined the company
at relevant time when the transaction had taken place and were
not responsible for the conduct of the company, hence I drop the
charges against S/Sh. Laurence Lyndon Haddon, Stephen
Lawrence Tiemey, Bernard Fournier, R.S. Lodha, R.P. Goel, Jan
Williams Van Erde, Chaman Lal Turki Dhar, Ramesh C. Vash,
S.K. Jain, K.P. Narasimhan, Sunil Mitra, Sundershan Lal, R.K.
Mahajan, C.G. Parekh, Kari Kumar and Usha Ranjan Saha."
25. There is no consideration of pleas of the appellant as has been
extracted by the adjudicating officer himself as noted above specially in
paragraph 10(1), 10(2) and 10(3) of the reply. The adjudicating officer
has not even held that the pleas taken by the appellant were untenable.
The adjudicating officer, thus, has imposed the penalty without returning
a finding that it was the appellant who was liable for contravention of
the provisions of Section 8(3), 8(4) and Section 68 of the FERA, 1973.
The order of the adjudicating officer, thus, is unsustainable on the above
ground also.
26. The Appellate Tribunal has also not considered the above plea
of the appellant and by making general observation that management of
the Company is to be handled by the Board of Directors, hence, the
appellant being Director is held guilty. No finding has been returned by
the Appellate Tribunal that the appellant was not a part-time, nonexecutive Director and was responsible for the conduct of business of
the Company at the relevant time.
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27. We may also notice few judgments of this Court some of
which have also been referred to by the learned counsel for the parties.
A three-Judge Bench judgment in S.M.S. Pharmaceuticals Ltd.