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Kavita Dogra v. Director Of Enforcement, Enforcement Directorate
Factual and Procedural Background
This appeal arises from an adjudication order dated 28 October 2003 passed by the Deputy Director, Directorate of Enforcement (DoE), New Delhi, alleging contravention of Section 18(2) of the Foreign Exchange Regulation Act, 1973 (FERA) during 1994-95 by M/s. Kwality Jewellers (India) Pvt. Ltd. and its directors, including the Appellant, Ms. Kavita Dogra, who was a director until 31 May 1995. The DoE initiated proceedings by issuing a memorandum dated 28 September 2000 to the company and its directors. The adjudication order found an omnibus contravention by the directors without separate consideration of individual roles. The Appellant challenged this order before the Appellate Tribunal for Foreign Exchange (AT), which dismissed her appeal by order dated 9 October 2007. The present appeal is directed against this dismissal.
Legal Issues Presented
- Whether the Appellant, Ms. Kavita Dogra, can be held liable under Section 18(2) of FERA for non-realization of export proceeds despite the absence of specific findings about her role in the company's day-to-day affairs.
- Whether the statutory presumption under Section 68 of FERA applies to the Appellant as a director during the period of contravention and if such presumption can be rebutted.
- Whether the adjudication and appellate orders are sustainable in law given the lack of individualized consideration of the Appellant's responsibility.
Arguments of the Parties
Appellant's Arguments
- The Appellant contended that she was not an active director and had no involvement in the day-to-day affairs of the company.
- Relying on precedents such as Saroj Kumar Poddar v. State (NCT of Delhi) and Satish Kumar Bhalla v. Union of India & Anr, the Appellant argued that without specific attribution of role or responsibility in the memorandum, no finding of contravention can be made against her.
- The facts relating to the Appellant differ from those of other directors, particularly Mr. Dinkar Dogra, whose appeal was dismissed based on evidence of active management, which is absent in the Appellant’s case.
Respondent's Arguments
- The Respondent argued that the case is covered by the earlier decision dismissing Mr. Dinkar Dogra’s appeal, emphasizing that the statutory presumption under Section 68 FERA applies to all directors during the period of contravention.
- Since the Appellant was admittedly a director at the time, she is deemed guilty unless she proves otherwise.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Saroj Kumar Poddar v. State (NCT of Delhi), AIR 2007 SC 912 | Requirement of specific averment of responsibility for conduct of business to hold a director liable under a deeming provision. | The Court relied on this precedent to emphasize that mechanical application of the deeming provision without specific findings on the Appellant’s role is legally unsustainable. |
| Satish Kumar Bhalla v. Union Of India & Anr (decision dated 26 February 2009 in Crl.M.C No. 5062 of 2006) | Reinforcement of the principle that liability under such provisions requires clear attribution of responsibility. | Supported the Appellant’s contention that absence of specific role attribution precludes a finding of contravention. |
| S.M.S Pharmaceuticals Limited v. Neeta Bhalla, 2005 CrlLJ 4140 | Interpretation of Section 141 NI Act analogous to Section 68 FERA requiring proof of responsibility at the relevant time, not mere designation. | Used by the Court to clarify that holding a directorship alone does not suffice to establish liability without proof of responsibility. |
Court's Reasoning and Analysis
The Court noted that the adjudication order contained an omnibus finding against all directors without individualized consideration of the Appellant’s role. The Appellate Tribunal’s order similarly failed to discuss facts specific to the Appellant, focusing instead on other directors. The Court observed that Section 68 of FERA creates a statutory presumption of guilt for directors in charge at the time of contravention but allows rebuttal by proving lack of knowledge or due diligence. The Court found that the memorandum issued by the DoE was a standardized form with identical averments against all directors, lacking any specific mention of the Appellant’s role in managing the company’s affairs. Applying precedents, the Court held that liability cannot be mechanically imposed on all directors without specific findings of responsibility. The Court distinguished the Appellant’s case from that of Mr. Dinkar Dogra, where evidence showed active management. Consequently, the Court concluded that the DoE failed to establish contravention against the Appellant and that both the adjudication and appellate orders were legally unsustainable.
Holding and Implications
The appeal is allowed.
The adjudication order dated 28 October 2003 and the impugned appellate order dated 9 October 2007 are set aside in respect of the Appellant, Ms. Kavita Dogra. The direct consequence is that the Appellant is not held liable for contravention of Section 18(2) FERA. Any money deposited by the Appellant in the Court will be refunded with accrued interest within four weeks upon proper identification. The decision does not establish a new precedent but clarifies the necessity of individualized consideration of directors’ roles under Section 68 FERA.
ORDER
1. This appeal by the Appellant, Ms. Kavita Dogra, is directed against the impugned order dated 9th October 2007 of the Appellate Tribunal for Foreign Exchange (‘AT’) dismissing Order-in-Appeal No. 54 of 2004 against the adjudication order (Original) dated 28 October 2003 passed by the Deputy Director, Directorate of Enforcement, New Delhi alleging contravention, during the period 1994-95, of Section 18(2) of the Foreign Exchange Regulation Act, 1973 (‘FERA’) for non-realization of export proceeds by M/s. Kwality Jewellers (India) Pvt. Ltd. (hereinafter referred to ‘the company’) of which the Appellant was a Director till 31st May 1995.
2. The Directorate of Enforcement (‘DoE’) initiated the proceedings under FERA by issuing a memorandum dated 28 September 2000 to the company and its Directors/Managing Directors, i.e, Mr. L.R Sridhar, Managing Director, Mr. Dinkar Dogra, Ex-Managing Director, Mrs. Kavita Dogra, Ex-Director (Appellant herein), Mr. Ashish Dogra, NRI Director and Mr. Kiran Chimawar, Ex-Director.
3. The case of the Appellant was that she was not an active director of the company and was not involved in any manner with the day-to-day affairs of the company.
4. The Deputy Director, DoE, passed an adjudication order on 28 October 2003 referring to the replies of the company and its directors including the reply of the Appellant.
5. A perusal of the said adjudication order shows that there was no separate consideration of the individual cases of each of the directors. There is an omnibus finding to the effect that “export had taken place when S/Shri Dinkar Dogra, Ashish Dogra, Kiran Chimalwar and Smt. Kavita Dogra were responsible against whom the show cause notice was issued, to realize the money……….” There was no application of mind to the precise role and responsibility of the Appellant in the day-to-day affairs of the company.
6. Even in the impugned appellate order dated 9 October 2007 the discussion is about the roles of Mr. Dinkar Dogra and Mr. Kiran Chimalwar, the other Directors. Although the appeal of the Appellant, Mrs. Kavita Dogra, was also dealt with by the impugned appellate order, there is no discussion of the facts relating to her.
7. Learned counsel for the Appellant submitted that the facts of the present appeal were very different from those of Mr. Dinkar Dogra whose Criminal Appeal No. 43 of 2008 against the same impugned order dated 9 October 2007 of the AT was dismissed by this Court by an order dated 4 June 2008. Relying on the decisions in Saroj Kumar Poddar v. State (NCT of Delhi)AIR 2007 SC 912 and Satish Kumar Bhalla v. Union Of India & Anr (decision dated 26 February 2009 in Crl.M.C No. 5062 of 2006) it is submitted that in the absence of any specific role attributable to Smt. Kavita Dogra in the memorandum, there could be no finding of contravention of the provision of FERA as far as she is concerned.
8. On the other hand Mr. Vineet Malhotra, learned counsel for the Respondent submitted that the present case was covered squarely by the decision dated 4 June 2008 in Criminal Appeal No. 43 of 2008. Since the Appellant was admittedly a director of the company for the period during which the contravention took place, the statutory presumption under section 68 of fera stood attracted.
9. To begin with, the Court would like to observe that although Section 68 FERA is in the nature of a deeming provision, the proviso thereto contemplates rebuttal of such presumption by a person who is able to show that the contravention took place without his or her knowledge.
10. Section 68 FERA reads as under:
“68. Offences 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 of the contravention was committed, was in charge of, and was responsibile to, the company for the conduct of 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 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.”
11. The above provision is pari materia with Section 141 of the Negotiable Instruments Act, 1881 (‘NI Act’). In S.M.S Pharmaceuticals Limited v. Neeta Bhalla2005 CrlLJ 4140 it was emphasized by the Supreme Court that where a company is the accused in a complaint under Section 138 NI Act, then in order to rope in any other person with the aid of Section 141 NI Act, an averment must be made in the complaint to the effect that such person was in charge of and responsible for the conduct of the business of the company “at the relevant time” when the offence was committed, and not on the basis of merely holding a designation or office in a company.
12. In Saroj Kumar Poddar v. State the Supreme Court explained that it is not sufficient to mechanically reproduce the language of the statutory provision to say that all the directors of the company were incharge of the day-to-day affairs and therefore, would be deemed to be guilty of the offence. In particular it was pointed out in that case that “there was no averment in the complaint petitions as to how and in what manner the appellant was responsible for the conduct of the business of the Company or otherwise responsible to it in regard to its functioning.”
13. In the present case the memorandum is a cyclostyled form and the averments as regards all the directors is identical. There is no specific mention of the precise role of the Appellant in managing the day-to-day affairs of the company. The case of the Appellant is different from that of Mr. Dinkar Dogra. Prior to Mr. L.R Sridhar taking over the management of the company, Mr. Dinkar Dogra was the managing director. The order dated 4 June 2008 passed by this Court dismissing Mr. Dinkar Dogra's Criminal Appeal No. 43 of 2008 discusses in detail the evidence showing Mr. Dogra to be incharge of the day-to-day affairs of the company. There is no evidence to show in what manner the present Appellant, Mrs. Kavita Dogra was responsible to the company for the conduct of its business. As already noticed, neither the adjudication order nor the impugned order of the AT discusses the facts peculiar to the Appellant.
14. The Court is, therefore, satisfied that the DoE failed to make out a case of contravention of Section 18(2) FERA as far as the Appellant was concerned. Neither the adjudication order nor the order of the AT in her case are sustainable in law.
15. Accordingly, the adjudication order dated 28 October 2003 and the impugned order dated 9 October 2007 of the AT are hereby set aside.
16. The appeal is allowed in the above terms.
17. The money, if any, deposited by the Appellant in this Court will now be refunded to her in accordance with law within a period of four weeks from today upon proper identification, together with the interest, if any, accrued therein.
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