Delhi High Court
Krishan Kumar Bangur vs Director General Of Foreign Trade on 17 April, 2006
Equivalent citations: [2006]133COMPCAS83(DELHI), [2006]72SCL334(DELHI)
Author: Vikramajit Sen
Bench: Vikramajit Sen
JUDGMENT Vikramajit Sen, J.
Page 1596
1. Rule.
2. The dispute in the present case is primarily concerned with legal principles. Hence, the Writ Petition is finally being disposed of by this Judgment.
3. The facts, as they emerge, is that M/s. Hastings Mill had obtained an EPCG license dated 15.1.1993 for a CIF value of Rs. 13,20,637/-, on the condition that the licensee would effect exports to the extent of four times of the CIF value viz. US $ 44,747 towards additional export obligation within a period of five years, in addition to the maintenance of average export performance. The relevant period, therefore, is 15.1.1993 to 14.1.1998.
4. Mr. Bhasin, learned Counsel for the Respondent, states that this obligation had not been fulfillled by the end of the said period. It is, however, contended by Mr. Tripathi, learned Senior Counsel for the Petitioner that it had been asserted before the Respondent Authorities that the obligation was infact fulfillled. This controversy need not be decided in the present proceedings. The licensee, namely, M/s. Hastings Mill appears to have been taken on lease by Murlidhar Ratanlal Exports Limited (MREL), but we are concerned with that transaction. On detecting the failure to perform the export obligation, Notices appear to have been dispatched to M/s. Hastings Mill [Jute Division of Shree Digvijay Cement Co. Ltd.], Hooghly, as well as to all its Directors.
5. The contention of the Appellant, namely, Shri Krishan Kumar Bangur is that he was not a Whole-Time Director and, therefore, had nothing to do with the day-to-day working of the Company, and that he had resigned from the Company on 10.11.1998. So far as his resignation is concerned it has occurred after the expiry of relevant period, that is, 14.1.1998 and would, therefore, be of no avail to the Petitioner. The legal question which remains, however, is whether, solely on the strength of the Petitioner being a Director of the licensee Company, namely, M/s. Hastings Mill, could the Petitioner be held individually liable for prosecution/punishment for non-fulfillment of export obligation by the Company.
6. The Show Cause Notice under Section 14 for action under Sections 8 and 11 of the Foreign Trade (Development and Regulation) Act, 1992 [ hereinafter referred to as Act for short) dated 14.10.2003 had been issued to the said M/s. Hastings Mill as well as all its Directors. The say of the Petitioner is that he did not receive the Show Cause Notice. The Show Cause Notice mentions, inter alia, that it is prima facie established that M/s. Hastings Mill and their Directors have violated the conditions of license mentioned above and thereby made themselves liable to penal action under Section 11 of the said Page 1597 Act. The reasons for arriving at the conclusion that the Petitioner as a Director, has personally become liable for such action has not been adumberated.
7. In the Order in Original dated 8.4.2004, after noting that several communications had been addressed to the Company and the Directors, it has been held as follows:-
7. I have gone through the facts and records of the case carefully. I find that M/s. Advance License for duty free import of items as mentioned in the license for a CIF value of Rs.13,20637/-. One of the condition of the license was that the licensee would export to the extent of 4 times the CIF value of the license amounting to US$447477 towards additional EO within a period of 05 years, in addition to the maintenance of average export performance. The export obligation period has expired long back. After expiry M/s. Hasting Mill (Jute Division of Shree Digvijay Cement Co. Ltd.) G.T. Road, Rishra, Distt. Hooghly (WB) had obtained the above mentioned of the export obligation period the firm had not been able to produce all the documents prescribed as evidence for fulfilllment of Export obligation and failed to account for the imported raw material.
8. In view of the above, I am convinced that the firm have not fulfillled the export obligation and that the firm have no evidence to the contrary. I am further convinced that the firm have violated the conditions of the said advance license issued to them as well as provisions of export import policy. The duty free goods have been misused for purpose other than licensed. Hence the import of duty free goods is rendered violative of the exim policy. The reply of firm is not acceptable at all with regard to failure to fulfill export obligation.
9. Therefore, in exercise of the powers vested in me under Section 14 read with Section 11 of the Foreign Trade (Development and Regulation) Act, 1992, I hereby impose a penalty of Rs.1320637/- (i.e. 100% of the CIF Value) only on M/s. Hasting Mill [Jute Division of Shree Digvijay Cement Co. Ltd.] G.T. Road, Rishra, Distt. Hooghly (WB) and their Directors. I also order that in addition to above penalty, they should also pay to the Customs Authority the full amount of Customs Duty along with penal interest as provided in the Exim Policy read with Customs Act.
10. This action is without prejudice to any other actions that may be taken against the noticee firm under the Foreign Trade (Development and Regulation) Act, 1992 and the rules and order made there under or any other act or law in force.
8. A perusal of the above will disclose that the Authority had not specifically considered the role that was to be played by the Petitioner in the Export Performance. It is completely reticent on the reasons for the finding of personal culpability of any of the Directors, including the Petitioner.
9. The matter was carried in Appeal by the Petitioner, and the Appeal was dismissed on 19.5.2005. The relevant portion of the Dismissal Order reads as follows:
5. I have gone through the facts of the case available on record and the submissions, written as well as oral, made during the personal Page 1598 hearing by the Advocate. It is observed that the license was issued on 15.1.1993 and the export obligation period was valid till 14.1.1998 (five years). During the entire period of export obligation Shri Krishna Kumar Bangur was Director in the company. Hence, he cannot be absolved from the responsibility of the fulfilllment of the export obligation. It is found that neither the firm nor any other Director of the firm has filed any appeal against the Adjudication Order dated 8.4.2004. Any appeal filed by them now will be grossly time-bared. Hence, considering their appeal now at this stage, if at all filed, will not be possible. Though the advocate of the Director explained that they have completed the export obligation but no export documentation in support of their plea has been furnished. On the contrary, in their appeal he has also mentioned that due to fire in their office premises, the records got burnt and no records relating to exports and import is available. Secondly, at one place they say that company was sold to MREC and on the other place the company stated to have been given on lease. Though the appellant is making confusing statements but it is clear that the company has not submitted any document in support of fulfilllment of their export obligation and hence they have not made any exports.
6. Since Shri Bangur was a Director in the company on the date of issue of the license and remained in position till expiry of the export obligation period (even though the company was given on lease to MREL), he is equally responsible for completing the obligations undertaken against the license. The company and other Directors have also not filed any appeal. The import of capital goods imported duty free involved a huge Government revenue, hence this becomes the responsibility of the Directors also to complete the obligation of the license taken by the company. So, there is no reason to interfere with the Adjudication Order and waive the penalty. Accordingly, in view of powers vested in me in terms of the provisions of Section 13 read with Section 15 of the Foreign Trade (Development & Regulation) Act, 1992, the following Order is made:
No.11/94/204-05/ECA.I May 19, 2005 ORDER 1. The appeal is dismissed.
2. In addition to the penalty imposed by the Jt. DGFT, a penalty of Rs.10,000/- on each Directors of the company is also imposed.
3. The Jt. DGFT, Kolkata to initiate recovery proceedings against the company and all Directors.
(May D. Kem) Addl. Director General of Foreign Trade
10. It is well-settled that a decision has to be self-contained. It cannot be added to or improved upon by learned Counsel for the Respondent. It is also manifest that the Order merely recites the ipse dixit that the Director of a Company is responsible for completing the export obligations.
Page 1599
11. If authority is required for the first proposition it can be found in the celebrated decision on Mohinder Singh Gill v. The Chief Election Commissioner, New Delhi , paragraph 8 of which reads as follows:
8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose J. in Gordhandas Bhanji (at p. 18):
Public orders publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the acting and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself.
Orders are not like old wine becoming better as they grow older.
In similar vein, in Babu Verghese v. Bar Council of Kerala , the Apex Court was called upon to consider a case under the Advocates Act. While doing so it applied the same principles earlier enunciated in Taylor v. Taylor (1875) 1 Ch D 426 and in Nazir Ahmad v. King Emporer . The Apex Court observed as follows:
It is the basic principles of law long settled that if the manner of doing a particular act is prescribed under any statute, the act must be done in that manner or not at all. The origin of this rule traceable to the decision in Taylor v. Taylor which was followed by Lord Roche in Nazir Ahmad v. King Emperor.
12. Learned counsel for the Petitioner has drawn my attention to the decision of the Division Bench in Santanu Ray v. Union of India . After taking note of the legal principle that any Director, who is a party to a fraud or the commission of any tort, is personally liable, the Bench held, in the circumstances of that case, that after the veil of the corporate entity is lifted, the adjudicating authorities will determine as to which of the Directors is concerned with the evasion of the excise duty by reason of fraud, collusion or willful mis-statement or suppression of facts, or contravention of the provisions of the Act and the Rules made there under. So far as individual Page 1600 liability of a director to the payment of excise duty and penalty is concerned, no liability can be fastened on him unless the department is able to show as to how and to what extent a particular Director is liable. The Respondents have not taken the trouble to consider and comply with these legal mandates and prerequisites.
13. In the Counter Affidavit reliance has been placed by the Respondents on Section 5 of the Companies Act, 1956 which defines the phrase "officer who is in default". The reliance is wholly misplaced. The Section clarifies that for the purpose of any provision in that Act, the officer who is in default would include several persons including a Whole Time Director. In any event Section 5 is not applicable as it deals with defaults under the Companies Act and not in any other statute. In view of the stand taken by the Petitioner that he was not a Whole Time Director this point ought to have been specifically dealt with by the Respondents. Mr. Bhasin, learned Counsel for the Respondent, contends that no proof was tendered to the effect that the Petitioner was not a Whole Time Director. On a perusal of the Order in original as well as the Appellate Order I fail to find a specific finding to the effect that the Petitioner was a Whole Time Director. This finding was essential. The Respondents would at least have held that in the absence of any proof, an adverse presumption should be drawn.
14. In order to sustain the imposition of a punishment on an individual Director it was incumbent on the Respondents to allege and assert the existence of a duty or obligation cast on one or all the Directors of the defaulting Company and the contumacious failure to fulfill it. The Show Cause Notice does not mention the grounds on which individual liability is sought to be fastened on the Director. Neither of the Orders, that is, the Order in Original or the Appellate Order, disclose reasons which have persuaded those Authorities to come to the conclusion that the Petitioner had assumed an obligation or duty in ensuring that exports corresponding to four times the CIF value would be undertaken within the prescribed period. To assume or foist such a liability on the Directors would run counter to the basic tenets of Company law.
15. In these circumstances so far as impugned Order dated 19.5.2005 is concerned it must be quashed. Mr. Bhasin has valiantly contended that this Order should apply only to the Petitioner. However, he is unable to make a statement on behalf of the Respondents that the Order viz.-a-viz. the Petitioner may be set aside. Therefore, whatever advantage of this Judgment can be taken by persons similarly placed as the Petitioner, would follow in the ordinary course.
16. The impugned Order is set aside.
17. Parties to bear their respective costs.