Gujarat High Court
Om Vir Singh & 3 vs Union Of India & 2 on 3 May, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.Y. Kogje
C/SCA/14240/2010 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 14240 of 2010
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.Y. KOGJE
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of No
the judgment ?
4 Whether this case involves a substantial question of No
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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OM VIR SINGH & 3....Petitioner(s)
Versus
UNION OF INDIA & 2....Respondent(s)
==========================================================
Appearance:
MR DEVAN PARIKH, ADVOCATE for the Petitioner(s) No. 1 - 4
MR PS CHAMPANERI, ADVOCATE for the Respondent(s) No. 2
PRIYANK P LODHA, ADVOCATE for the Respondent(s) No. 1
RULE SERVED for the Respondent(s) No. 3
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 03/05/2016
ORAL JUDGMENT
Page 1 of 11
HC-NIC Page 1 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT (PER : HONOURABLE MR.JUSTICE A.Y KOGJE)
1. The present petition under Article 226 is for the relief of quashing the order-in-original dated 15.07.2009 passed by the Deputy Director, Foreign Trade and order-in-appeal dated 07.10.2010 passed by the Additional Director General of Foreign Trade on the ground that the penalty is sought to be imposed when there is no charge in the show cause notice or imposing the penalty.
2. Facts in brief necessary for the disposal of this petition are as under:
(a) The petitioners, who are the directors of the company Hindustan Cotex Exports Limited being registered under the provisions of Companies Act, 1956 (now under liquidation), on the bona fide belief that the company would be able to make substantial exports, sought to avail concessional rate of duty under the Export Promotion Capital Goods Scheme ['EPCGS' for short] or for the reason, the company obtained EPGC license No. P/CG/2134942 for importation of high speed circular knitting machine of CIF. The license was issued with the condition that the company shall earn foreign exchange towards its export obligation within the period of five years.
(b) Pursuant to such license, the company imported four machines at the concessional rate of duty. The company engaged itself in manufacturing of under processed fabrics by Page 2 of 11 HC-NIC Page 2 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT use of such imported machinery and was also sending goods for process outside the factory. As a result, the quality of the process did not match the requirement of the foreign buyers.
The company had to face problems related to rejection of fabrics. The foreign buyers stopped giving further orders. As a result, the company could not fulfill the export obligation as required under the license and as against export obligation of 645000 U.S.Dollars, the company could achieve exports of 75,177 U.S.Dollars. It appears that the company was wound up in the winding up proceedings before the High Court in the year 2006.
(c) As the export obligation could not be fulfilled, the show cause notice dated 09.09.2003 came to be issued firstly, for the payment of an amount of Rs. 25,80,680/- being the amount of interest from the first day of import till 19.07.2002 and for future interest till payment. The show cause notice also called upon the noticee firm to show cause as to why action should not be taken to cancel/suspend the importer/exporter code. In such notice, it was further stated that the notice should be brought to the notice of the Directors asking them to forward their submissions. The show cause notice, thereafter, came to be adjudicated and, by the order-in-original, the Deputy Director General of Foreign Trade ordered recovery of the payment of penalty and while doing so, concluded as under:
"7. On going through the file it is noticed that a Demand Page 3 of 11 HC-NIC Page 3 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT Notice dated 23/7/2002 has already been issued by the Office of the Director General of Foreign Trade, New Delhi demanding the noticee company and its Directors to pay an amount of Rs. 25,80,680/- on 23.7.2002. The noticee company and its Directors has not submitted documentary evidence about fulfilment of the export obligation in respect of the above mentioned FPCG license and also not availed the personal hearing offered to them by this office in continuation of this office Show Cause Notice dated 09/09/2003. Since the noticee company and its Directors has failed to submit the export documents, the adjudicating authority has no option but to impose penalty on its Directors jointly and severaly. In my opinion the appropriate penalty amount in this case will be two times the cif value of the license i.e. Rs. 1,01,74,696/- (Rs. 5087348 x 2) (Rupees One Crore One Lakh Seventy Four Thousand Six Hundred Ninety Six Only.)"
(d) The order-in-original was carried in appeal but the appellate authority also confirmed the order-in-original by an order dated 07.10.2010. It is this action of the department which the petitioner seeks to challenge.
3. Learned senior advocate Mr. Parikh in support of the challenge contends that the authorities had travelled beyond the scope of the show cause notice as in the show cause notice, the only power sought to be invoked were under Section 8(1)(a) (b) of the Foreign Trade Development and Regulation Act, [FTDR Act for short] and the noticees were not even called upon to show cause against the imposition of personal penalty in the show-cause notice. He also contended that so far as the petitioners are concerned, there were no allegations or proposals for the imposition of penalty at all. He contended that the orders Page 4 of 11 HC-NIC Page 4 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT passed are in violation of principles of natural justice in as much as Section 14 of the FTDR provides for issuance of notice prior to imposition of penalty and the provisions require that the grounds on which penalty is to be imposed be conveyed to the person. He also contended that no charge of any abatement or knowledge of any deliberate contravention has been made against any of the directors and therefore, in absence of such allegation the proposal of levy of penalty on the directors is unfounded.
4. As against this, learned advocate Mr. Lodha appearing for the department supports the action of the department in the show cause notice and submitted that the order in original and order in appeal are fully justified. In support of his contention he submitted that the requirement of the provisions were applied with as there was sufficient show cause notice to the directors since in para 8 of the show cause notice it is stated as under:
"8. The content of this show cause notice should be brought to the notice of all your directors who should be asked to forward their submission separately as the action as deemed fit is also proposed to be taken against them after examination of the reply submitted by them. The details of all the directors residence are not readily available with the adjudication authority in subject matter."
5. The gist of contentions taken up by the advocate for the respondent is as under:
Page 5 of 11HC-NIC Page 5 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT "19. ... ... ... ... The respondents have to say and submit that since these grounds are false, far from truth, misleading and based on an effort by them to misguide this Hon'ble Court by way of their wrong submissions and hence this Hon'ble Court is prayed not to consider these false submissions and mis-
representation and consequently this Hon'ble may be pleased to dismiss the petition. The submission of the respondent that total duty foregone due is Rs. 13.00 lacs out of which Rs. 6.5 lacs has also been adjusted towards encashment of bank guarantee, penalty of Rs. 1.00 crore jointly and severally on the Directors is incorrect and is totally denied. As regards the imposition of the penalty on Krishna Singh, wife of Shri Om Vir Singh, the respondents deny the allegation of the petitioners. The respondents have to say and submit that on the date of obtaining license as per the Memorandum of Understanding and also during the course of proceedings of adjudication with regard to the show cause notice dated 09.09.2003, the petitioners have never brought to this fact with documentary evidence before the adjudicating authority and hence the allegations made by them at this belated stage that too without any documentary evidence cannot be accepted and hence totally denied. In para 8 of the show cause notice dated 09.09.2003, the respondents have clearly indicated that contents of the notice should be brought to the notice of all concerned so as to enable them to furnish their separate reply. Moreover, the notices have also been issued to all the Directors who were on the Board of the company on the date of making application and obtaining the license and hence the contention lacks complete merit and thus totally rejected and denied. The respondents have further to say and submit that the petitioners have been given adequate opportunity for making submission, representation and hearing and, therefore, the allegation is totally baseless and hence denied. The contention of the petitioners that only charge in th show cause notice was with regard to the suspension of IFC number and nowhere it was mentioned to impose penalty is also incorrect as respondents have intended to take actions in terms of license conditions, Foreign Trade Policy and provisions of FT (D & R) Act, 1992 and hence the contention is only with a view to mislead this Hon'ble Court and devoid of merit and hence Page 6 of 11 HC-NIC Page 6 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT vehemently denied by the respondent. Moreover, the Directors are the Officers of Default in terms of Section 5 of the Company Act, 1956 and for any failure of the company, they are equally liable and, therefore, the action taken by the respondents is totally lawful and, therefore, all allegations made on this account is denied by the respondents. It is true that company is separate and legal entity but it is also settled legal position that Directors are treated as Officers of Default, any failure at the end of company, the Directors cannot take shelter of the company being a separate entity. Section 11 of the Foreign Trade (Development and Regulations) Act, 1992 clearly provides imposition of fiscal penalty against any person who is found violating the provisions of Foreign Trade Policy and provisions of FT (D&R) Act, 1992. Therefore, the penalty imposed on the Directors being the Officers of Default in terms of Section 5 of the Companies Act, 1956, is totally lawful and just and hence allegations made by the petitioners are totally denied."
6. It will be useful to reproduce relevant sections of the FTDR:
Section 11 :Contravention of provision of this Act, rules orders and foreign trade policy-
(1) ... ... ...
(2) Where any person makes or abets or attempts to make any export or import in contravention of any provision of this Act or any rules or orders made thereunder or the foreign trade policy, he shall be liable to a penalty of not less than ten thousand rupees and not more than five times the value of the goods or services or technology in respect of which any contravention is made or attempted to be made, whichever is more.
14. Giving of opportunity to the owner of the goods etc.:-
Page 7 of 11HC-NIC Page 7 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT No order imposing a penalty or of adjudication of confiscation shall be made unless the owner of the [goods (including the goods connected with services or technology)] or conveyance, or other person concerned, has been given a notice in writing-
(a) informing him of the grounds on which it is proposed to impose a penalty or to confiscate such [goods (including the goods connected with services or technology)] or conveyance;
and
(b) to make a representation in writing within such reasonable time as may be specified in the notice against the imposition of penalty or confiscation mentioned therein, and, if he so desires, of being heard in the matter."
7. The perusal of show cause notice which is the starting point of the proposed action, this Court would notice that the show cause notice reads as under:
"6. And whereas the above action of the noticee firm contravene the provision of para 4.20 of chapter 4 the Export and Imports Police Book 1997-2002 and section 11(1) (2) and (3) of the Foreign Trade (D & R) Act, 1992. Now therefore, in exercise of the powers vested in me under Section 8(1) (a)(b) of the Foreign Trade (D&R) Act, 1992, I call upon the noticee firm to show cause within a period of 30 days from the date of receipt of this notice as to why action should not be taken under Section 11(4) to cancel/suspend the importer/exporter code number 3794000013, if you want to be heard in person to explain the case, appear before the undersigned on 21.10.2003 at 3.00 p.m."
8. The show cause notice therefore does not appear to have been addressed to the petitioners who are the directors nor does it lay down any proposal for imposing of the penalty. So far as the Page 8 of 11 HC-NIC Page 8 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT service of notice to the petitioner directors learned advocate for the petitioner relied upon the judgement of Delhi High Court in case of L P Desai vs. Union of India and ors. reported in 108 [2003] DLT 334. He submitted that the view taken by the Delhi High Court is in the similar set of circumstances and relied upon particularly paras 15 and 18, which are reproduced as under:
"(15) ... ... Frankly, I do not see how this supports the provision advanced by Mr. Chawla. If it is being suggested that the petitioner cannot make a complaint when the company itself did not inform the petitioner of the receipt of the show cause notice, this is certainly not borne out by the aforesaid decision. The facts were entirely different. There, information that was sought was not provided by the company. The Supreme Court held that this lapse on the part of the company could not be taken advantage of by its own chairman, vice chairman, managing director and other members of the board of directors. This is certainly not the situation here. No notice was admittedly issued to the petitioner. Only in the notice issued to the company was it mentioned that the same be brought to the notice of the directors including the petitioner. Whether the company brought the aforesaid notice to the knowledge of the petitioner or not is not a relevant consideration and, therefore, the factum of the company not informing the petitioner cannot be construed as a parallel situation to the one before the Supreme Court in the aforesaid decision. In the present case what is of utmost importance is the fact that no notice to the petitioner was issued by the respondents. That being the case, there was a clear violation of the mandatory statutory provision contained in section 4L of the said Act. That apart, there was a violation of the principles of natural justice.
18. Before parting with this case, it would be relevant to note that though the aforesaid discussion has proceeded on the assumption that no prejudice has been caused to the petitioner, in point of fact prejudice has actually been caused to the petitioner. This is so because the show cause notice was not Page 9 of 11 HC-NIC Page 9 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT issued to the petitioner. Even the show cause notice issued to the company did not contain specific allegations against the petitioner to which he could reply. No opportunity as such was given to the petitioner to represent against the proposed imposition of penalty. Obviously, the petitioner was not heard before the order in original was passed whereby the aforesaid penalty was imposed upon him. The mere fact that he filed an appeal and was heard in the appeal would not alter the situation. The proceedings against him were void ab initio. Had the petitioner been issued a notice in terms of section 4L of the said Act, he could have represented against the imposition of such penalty. He could have placed on record various facts and circumstances to show that no offence was committed by the company and that even if such offence was committed by the company, he had no hand in it. All these circumstances, if he were able to establish them, would have absolved him of the liability of penalty which he now bears like a garroter round his neck. So even if the question of prejudice were to be taken up, it would be clear that the order in original as well as the Appellate Order imposing a penalty on the petitioner could not be sustained."
9. In view of the aforementioned this Court come to the conclusion that the show cause notice dated 09.09.2003 though titled to be a show cause notice under Section 14 and 11(2) of the FTDR does not fulfill the requirement of Section 11(2) in as much as it concerns the petitioner directors. Firstly as seen from the show cause notice the same is addressed to the noticee firm. Secondly the show cause notice is not directed towards the petitioner directors. Thirdly the proposed action under the show cause notice is for cancel/suspension the importer/exporter code and no penalty either on the company or the Directors is proposed. Fourthly no role or act is specified in the show cause notice by which the directors could be said to have abetted or Page 10 of 11 HC-NIC Page 10 of 11 Created On Sat May 07 02:01:45 IST 2016 C/SCA/14240/2010 JUDGMENT attempted to make any export or import in contravention of any provisions of the FTDR or rules and order made thereunder or the Foreign Trade Policy. Fifthly so far as the petitioners are concerned no opportunity of hearing is given therefore there is clear violation of principle of natural justice. By merely providing the notice that the contents be brought to the notice of the Directors who may submit their response would not be sufficient notice to them. In the notice no allegations were made against the Directors. In fact the notice itself provided that all directors should be asked to forward their submissions separately "as the action as deemed fit is also proposed to be taken against them after examination of the reply submitted by them". This itself suggests that in the show cause notice there was no definite proposal against the Directors. In this view of the matter the show cause notice is no show cause notice in the eye of law and therefore the consequential orders are also required to be nullified. The impugned order in original dated 15.07.2009 and order in appeal dated 07.10.2010 are hereby quashed. The petition is allowed. Rule is made absolute.
(AKIL KURESHI, J.) (A.Y. KOGJE, J.) Jyoti Page 11 of 11 HC-NIC Page 11 of 11 Created On Sat May 07 02:01:45 IST 2016