Madras High Court
Daman Prakash vs The Special Director on 12 November, 2013
Author: C.S.Karnan
Bench: C.S.Karnan
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 12/11/2013 CORAM THE HONOURABLE MR.JUSTICE C.S.KARNAN C.M.A.No.1610 of 2008 and M.P.No.1 of 2008 Daman Prakash ... Appellant Vs. 1.The Special Director, Enforcement Directorate, Government of India, 6th Floor, Lok Nayak Bhavan, Khan Market, New Delhi 110 003. 2.The General Manager, Reserve Bank of India, Foreign Exchange Department, Fort Glacis, Rajajai Salai, Chennai 600 001. ... Respondents (2nd Respondent Suomoto is impleaded as party respondent vide order of Court dated 07.12.12 made in C.M.A.No.1610 of 2008.) PRAYER: Civil Miscellaneous Appeal is filed under Section 35 of the Foreign Exchange Management Act-1999, against the order dated 01.04.2008 in Appeal No.179/2005, on the file of the Appellate Tribunal for Foreign Exchange confirming the order dated 13.01.2005 of the respondent. For Appellants : Mr.K.Sakthivel For Respondents : Mr.K.Ramasamy Special Govt. Pleader and enforcement for R1 Mr.T.Poornam for R2 - - - J U D G M E N T
The short facts of the case are as follows:-
The Deputy Commissioner of Customs, Chennai, ordered recovery of Rs.15,42,642/- as draw back of the Customs and Central Excise Duties Draw-back Rules of 1995 read with Section 75(1) of the Customs Act, 1962, from M/s.Dhaneshwara Overseas and its Partner, Mr.Sharavan Kumar, on the ground that export proceeds in respect of shipping bills dated 18.12.2000, have not been realized. Based on the above information details of pending export bills were called from the Tamil Nadu Mercantile Bank Limited, through which the export bills for M/s.Dhaneswara Overseas were negotiated. M/s.Tamil Nadu Merchandile Bank Limited, Chennai-6, vide its letter dated 14.11.2002 forwarded a list of pending export bills of the said firm along with copies of invoices. It was observed from the said list forwarded by the bank that there were eight export bills for a total value of Rs.1,64,90,623/- in respect of export of fabrics and garments made during the period from August 1998 to January 2001 pending realisation.
2. Further several summons were issued to Mr.Sharavan Kumar, Partner, of the firm for his appearance before the Assistant Director of Enforcement, Chennai, but he did not respond on the same pretext or the other. However, he finally appeared on 11.09.2003, on which date he was examined with reference to the pending export bills, and his statement was recorded. In his statement, inter alia, stated that as per his records, there were seven bills for a total value of Rs.1,66,72,214/- pending realisation, in respect of M/s.Dhaneswara Overseas. He also furnished a list of such outstanding export bills. When he was confronted with the statement of pending export bills forwarded by M/s.Tamil Nadu Mercantile Bank Limited, which shows eight pending export bills for a total value of Rs.1,64,90,623/- he clarified that GR.No.AP784860, dated 23.07.1998, for US$ 900/-, in respect of export made to M/s.Gold Champa International Inc., New York, did not belong to his firm and there was no such bill pending in his records and that the difference in the total value of pending bills between his statement and that of the bank's was due to exchange fluctuations; that in respect of export bills due from M/s.Bon Mart Limited, Israel, M/s.Danny's Jamaica and M/s.Grace General Trading Ajman, he had applied for extension of time through his bankers to RBI and the extension of time for realizing the proceeds was given upto 10.11.2003 by Reserve Bank India vide its letter dated 11.08.2003.
3. He further stated that there had been no response from the above buyers and he was informed that goods were not taken delivery from bonded warehouses, because the bills were on DP at sight and the goods were reportedly gone for public auction. However, Mr.Sharavan Kumar, stated that he did know the details of auction and that he had lodged a claim with ECGC and the same was pending. Shri.Sharavan Kumar, additionally added that though his brothers viz., Shri.Daman Prakash, Shri.Regraj Rathod and one Kishore Kumar were partners apart from him in M/s.Dhaneswara Overseas, he and his brother Daman Prakash were only responsible for the conduct of the business of the firm. The Reserve Bank of India, vide letter dated 12.03.2004 in response to letter dated 04.03.2004 of Madras Office of Enforcement, has confirmed that they have not granted any extension of time beyond 10.11.2003 and also in this further letter dated 29.03.2004 confirmed that they have not considered any waiver / write off for the said firm. As regards to the distribution in G.R.No.AP-784860 dated 23.07.1998 for US$ 900/-, the Tamil Nadu Mercantile Bank, Chennai-6, vide letter dated 06.08.2004 confirmed that the said bill belonged to M/s.Dhaneswara Overseas and is still pending realization.
4. Mr.Daman Prakash another partner of M/s.Dhaneswara Overseas was also examined under summons on 27.05.2004 and his statement was recorded, wherein he inter alia, stated that the firm was started as a family concern but the matter related to unrealized export bills of M/s.Dhaneswara Overseas was followed by his brother Mr.Sharavan Kumar, with their Foreign buyers to raise the pending export proceedings and Shri.Sharavan Kumar was also assigned the job or taking up the matter with the RB for securing extension of time. When he was confronted with the list of pending export bills furnished by the Tamil Nadu Mercantile Bank, he like his brother Shri.Sharavan Kumar clarified that he understood from his brother Shri.Sharavan Kumar that Reserve Bank of India had given an extension in respect of 5GRS upto 10.11.2003 and that he was not aware whether any further extension was given by the Reserve Bank of India thereafter. Since, Mr.Sharavan Kumar was attending to the work, Mr.Daman Prakash, further stated that the business of the firm was stopped with effect from 31.03.2001, that he was not involved in the affairs of M/s.Dhaneshwara Overseas and that after 1999, he was not looking after the business which was taken care of by his brother Shri.Sharavan Kumar.
5. It was seen from the foregoing facts of the case that M/s.Dhaneswara Overseas, as per the statement furnished by their bankers M/s.Tamil Nadu Merchantile Bank had export outstanding of Rs.1,64,90,623/- in respect of 8 GRS. No extension of time/waiver has been given by the Reserve Bank of India beyond 10.11.2003 as would be seen from the above said letters of Reserve Bank of India. Shri.Sharavan Kumar and Daman Prakash being the partners of the firm were responsible for the conduct of the business of the firm during the relevant period. On the basis of the above, the complaint dated 30.08.2004 has been filed by the Assistant Director before the Special Director for enforcement and the same was considered and that the show cause notice as mentioned was issued to the notices. Hence, the above case has been filed against the respondent.
6. On the side of the respondent's reply statement has been filed. The show cause notice was received by the notices where as reply to the same has not been made within a period specified in the show cause notice. Therefore, the case was posted for personal hearing on 07.12.2004. Meanwhile, the notice's firm vide letter dated 23.11.2004 informed that Mr.Sharavan Kumar, partner of the firm is expected back to their office by 30th January, as he was attending the work to collect payments/giving legal notices and sending all relevant papers to the concerned Government authorities/Embassies for taking action at their end. As no reply on behalf of the firm was submitted with documentary proof as to what action has been initiated to recover the export dues outstanding, the request of notice No.2 would not be acceded to. The notice No.3 in the telegram dated 04.12.2004 requested for short adjournment instead of 07.12.2004. Accordingly, the case was fixed on 23.12.2004 at Chennai. Meanwhile, Mr.R.Lokanathan, Advocate for Daman Prakash vide letter dated 13.12.2004 requested for time on the ground that they were not provided with copies of the relied documents. The relied upon documents was again supplied on 15.12.2004 against acknowledgment. The call notice meant for M/s.Dhaneswara Overseas and Shri.Sharavan Kumar were served under section 9 (c) of FEMA, 1999 of 15.12.2004 and the call notice issued to Mr.Daman Prakash was received by one Mr.S.Chockalingam on 15.12.2004.
7. It is additionally added that on 23.12.2004 Mr.B.Kumar and Mr.V.S.Srikrishnan, Advocates appeared on behalf of Mr.Daman Prakash and submitted a letter dated 22.12.2004 along with certificate dated 20.12.2004 issued by M/s.S.L.Gadhia and Company C.A. firm regarding filing the returns of income tax for the period of 1996 to 2004. In his submission Mr.Daman Prakash vide letter dated 22.12.2004 contended that the firm is a family partnership. The partners were Shri.Sharavan Kumar, Narendra Kumar who expired on 15.11.1996 and his son Kishore Kumar was inducted as a partner from 16.11.1996, Ragraj and Daman Prakash, from the firm as well as the partners are assessed to Income Tax, that the firm has been carrying on business of exports from 1992/1993, that in the last three previous years, the position is that:
Financial Year Total Export Amount Due 1998/1999 4,13,93,182 Nil 1999/2000 4,15,09,845 62,91,707 2000/2001 1,30,03,387 1,03,78,798
8. The original Authority/Special Officer of the Enforcement Directorate of Enforcement has carefully gone through the evidence on record and passed order as follows:
(i) I impose penalty of Rs.30,00,000/- (Rupees Thirty Lakh only) on M/s.Dhanesware Overseas under the provisions of Section 13(1) of FEMA, 1999 and I also impose penalty of Rs.8,00,000/- (Rupees Eight Lakh Only) each on Shri.Sharavan Kumar and Daman Prakash, Partners of the said firm under the said Act.
(ii) The penalty imposed should be deposited in the Office of the Deputy Director, Enforcement Directorate, Shastri Bhawan, III Block, III Floor, No.26, Haddows Road, Chennai, in the form of demand draft drawn in favour of the Pay and Accounts Officer, Department of Revenue, New Delhi, within 45 days of the receipt of this order.
9. Further the said Special Officer had assigned the reason as follows:
From the foregoing facts and the findings, it becomes crystal clear that Shri.Sharavan Kumar and Shri.Daman Prakash were responsible for activities of the firm and both the Noticees of the said notices firm were aware of the fact of non-realisation of the export proceeds which were pending since 1998 and failed to take effective steps to realise the proceeds in question and as such I hold the firm and its partners/Shri.Sharavan Kumar and Shri.Daman Prakash guilty to the charges under Section 7 and 8 of FEMA, 1999 read with Regulation 9 & 13(i), (ii) of FEM (Export of Goods and Services) Regulation, 2000 as alleged in the said memorandum and the partners are guilty in terms of Section 42 of FEM Act, 1999. Shri.Sharavan Kumar, Daman Prakash and M/s.Dhaneswar Overseas are liable to penalty under Section 13 of the said Act.
10. Aggrieved by the said order Mr.Daman Prakash, has filed an appeal No.179 of 2005, on the file of the Appellate Tribunal, Foreign Exchange, New Delhi, the said appeal was dismissed by the Appellate Authority on 13.01.2005. Against the said dismissal of the appeal now the present appeal has been filed by the appellant.
11. The highly competent counsel Mr.K.Sakthivel submits that the Reserve Bank of India has condoned the non-realization of export proceeds of M/s.Dhaneswara Overseas, in which the appellant was a partner after the provisions of the Foreign Exchange Management Act by way of order dated 23.02.2005 thereby nothing survives in the adjudication initiated earlier to the order of the Reserve Bank for condonation. The Reserve Bank of India had granted extension upto 10th November 2003 for furnishing explanations and thereby on the material date on which the adjudication order was passed, there was no cause of action. The non-realization of the export proceeds by itself is not the offence, but, it is only the failure to offer proper explanation for non-realization of the export proceeds. The Tribunal under a mistaken notion that only because a person is a partner, penalty would be imposed upon him irrespective of the question if he was participating in the day to day management affairs of the firm. There was no finding by the respondent authority with respect to steps taken by the firm for realization of the export proceeds. In the absence of the finding in this regard, the order is liable to be set aside. Further, the Reserve Bank of India exonerated the appellant's firm.
12. The very competent counsel further submits that the appellant herein was not participating in any of the affairs of the partnership firm. Further, there is no material evidence that the appellant had participated in the appellant's firm administration. He had never signed any cheque or documents or corresponding communications or any negotiations with third parties. In the absence of documentary proof the respondent had given findings which is not sustainable under law and also not fit to be proceeded with any further. The appellant had withdrawn from the partnership firm and he had also withdrawn a major portion of the capital share invested by him even in the year 1997-1998, as such the appellant had no nexus with the said firm. The partnership firm for the year 2000-2001 pertaining to the assessment year 2001-2002, therefore the appellant is not liable to pay any penalty amount imposed on him. The respondents had not produced any relevant documents to prove that the appellant had participated in the affairs of the firm namely M/s.Dhaneswara Overseas, since he is retired from the firm in the year 1997 itself. Therefore, the appellant cannot be penalized merely because he was an erstwhile partner of the firm. As per the respondent findings that the other partner Sharavan Kumar was incharge of the day to day management of the firm, as such the appellant herein cannot be penalized.
13. Further the appellant had sent communication to the respondent and informed them that his name was unwillingly involved and also sent a demand draft for a sum of Rs.5,00,000/- (Five lakhs) in settlement of dues towards duly draw back without prejudice. The appellant company had paid a sum of Rs.15,42,642/- towards duly draw back dues in the name of the appellant's firm M/s.Dhaneswara Overseas.
14. The learned counsel had cited the below mentioned citation:
2005 (5) CTC 65 Negotiable Instruments Act, 1881, Sections 138 & 141 Offences by Companies Liability of Managing Director, Directors and persons in charge of and responsible for conduct of business of company When persons are sought to be made criminally liable under Section 141 for offence committed by companies, such person should be incharge of and responsible to company for the conduct of business of company at the time when offence is committed Every person connected with company cannot be held responsible Only those persons who were in charge of and responsible for conduct of business of company at time of commission of offence will be liable for criminal action Criminal liability depends on role played in affairs of company and not on status or designation Every Director, Manager or secretary of company cannot be made liable for criminal action Direct involvement in offence committed is necessary Consent or connivance or neglect on part of holders of office of company would be essential Complaint must disclose necessary facts regarding liability of official It is necessary to specifically aware in complaint under Section 142 that at time of commission of offence, person accused was in charge of and responsible for conduct of business of company In the absence of such averment, complaint may be dismissed at threshold Managing Director or Joint Managing Director of company by virtue of their office are persons in charge of and responsible for conduct of business of company are liable for criminal action Signatory of cheque which is dishonoured is clearly responsible and will be covered under Section 141. 2010 (3) MWN (Cr.) DCC 28 (SC) Negotiation Instruments Act, 1881 (26 of 1881), Section 141 CRIMINAL PROCEDURE CODE, 1973 (2 of 1974), Section 482 Offence by Company Vicarious liability of Directors of Accused-Company Absence of specific allegations against Directors/Respondents Effect Except averments in Complaint to effect that Respondents, 'RJ', 'SJ' and some other Accused were Directors of Accused-Company and were responsible and liable for acts of Company, no specific allegation made against any of them Question of proving a fact, not mentioned in Complaint, does not arise No material disclosed in Complaint to make out a case against Respondents to effect that they had been incharge of affairs of Company, and were responsible for its action Petitioner/Complainant relied on mistaken presumption that Respondents/Directors were vicariously liable for acts of Company In absence of specific allegations, High Court held that Complaint was liable to be quashed and Respondents were liable to be discharged.
15. The Senior counsel Mr.K.Ramaswamy appearing for the respondent submits that the show cause notice served on the notices whereas reply to the same has not been submitted within the specified period. Subsequently, the case was posted for personal hearing on 07.12.2004 meanwhile the appellant firm informed through their letter dated 23.11.2004 that the partner Mr.Sharavan Kumar is expected back to their office by 30th January 2005, as he was attending the work to collect payments giving legal notices and sending all relevant papers to the concerned government authorities for taking action at their end has no reply on behalf of the firm was given with documentary proof as to what action had been taken to recover the export dues, outstanding, the request of notice No.II would not be acceded to. The learned counsel further contended that the notice No.3 in their telegram dated 04.12.2004 request for short adjournment instead of 07.12.2004. Accordingly the case was filed on 23.12.2004, at Chennai. The appellant had stated that the firm is a family partnership company. The partners were Sharavan Kumar, Narendra Kumar who expired on 15.11.1996 hence his son Kishore Kumar was inducted as a partner from 16.11.1996, Shri.Regraj Rathod and Shri.Daman Prakash that the firm as well as the partners are assessed for Income Tax and that the firm has been carrying on business from 1992 onwards. The highly competent counsel further submits that the Deputy Commissioner of Customs responsible for the recovery of Rs.15,42,642/- of draw back of the Customs and Central Excise duty draw back rules 1995 from M/s.Dhaneswara Overseas, on the ground that export proceeds in respect of supporting bills dated 18.12.2000. There were 8 export bills for a total value of Rs.1,64,90,623/- in respect of export of fabrics and garments made during the period of August 1998 to January 2001, the said particulars furnished by M/s.Tamilnadu Mercantile Bank. One of the partners Sharavan Kumar was examined and his statements were recorded relating to the finding export bills. As per his statement there were 7 bills for a total value of Rs.1,66,72,214/- pending realization in respect of M/s.Dhaneswara Overseas. Mr. Sharavan Kumar, a partner also furnished a list of outstanding export bills. When he confirmed with the statement of pending export bills forwarded by M/s.Tamilnadu Mercantile Bank Limited which showed 8 export pending bills for a total value of Rs.1,64,90,623/-. Further one of the partners Mr.Sharavan Kumar had openly admitted that the appellant herein is also a partner of M/s.Dhaneswara Overseas, who also is responsible for the conduct of the firms business. Additionally as per the letter given by the Tamilnadu Mercantile Bank, it was confirmed that the said pending bills are belonging to Ms.Dhaneswara Overseas.
16. The highly competent counsel Mr.K.Ramasamy further submits that as per the letter issued by the Reserve Bank of India, Mr.Sharavan kumar and Mr.Daman Prakash the appellant herein being the partners of the firm were respectively responsible for the conduct of the firm during the relevant period. The learned counsel has also filed a counter statement and submitted further arguments. Mr.Sharavan kumar furnished a list of such outstanding export bills, when he was confronted with the statement of pending export bills forwarded by the Tamilnadu Mercantile Bank which showed spending export bills for a total value of Rs.1,64,90,623/-, he clarified that G.R.No.9.AP784860 dated 23.07.1998 for US$ in respect of export made to M/s.Gold Champa International Inc., New York, did not belong to his firm and there was no such bill pending in his records and that the difference in the total value of pending bills between his statements and that of the bank's was due to exchange fluctuations, further Mr.Sharvankumar stated in his statement that in respect of export bills due from M/s.Bonmark Limited, Israel, M/s.Dannys Jamaica and M/s.Grace Jarrel Trading Ajman, he had applied for an extension of time through his bankers through Reserve Bank of India and the extension of time for realizing the proceeds were given upto 10.11.2003 by the Reserve Bank of India and that there has been no response from the above buyers and he was informed that the goods were not taken delivery from the Bonded Ware house, because the bills are in D.P at site and that the goods were reported to be gone for public auction.
17. The learned counsel further submits that the appellant's brother Shri.Sharavan Kumar, stated that the partner of the firm are the appellant herein and Mr.Kishore Kumar were partners including himself and the appellant herein is only responsible for the conduct of the business of the firm. As such the appellant is liable to pay the penalty. The appellant also was examined and he had stated that the firm is being run by the family members. The Tamil Nadu Mercantile Bank vide his letter dated 06.08.2004 confirmed that distributed GR.No.AP784860, dated 23.07.1998 for US$900/- was handed over to Dhaneswara Overseas and the same is still outstanding. Further, Shri.Sharavan Kumar and the appellant herein were solely responsible for the conduct for the business of the firm, being the partners during the relevant period. One of the partners, Shri.Sharavan Kumar stated in his statement that the appellant herein was looking after the business and day to day affairs of the Company. Therefore, the penalty was imposed. Hence, the learned Senior Counsel for the respondent entreats the Court to dismiss the above appeal.
18. The highly competent counsel Mr.T.Poornam, has filed a counter statement for the 2nd respondent and submitted that the appellant has not claimed any relief against the 2nd respondent/Reserve Bank of India. The 2nd respondent had granted extension of time on 23.02.2005 and controlled the non-realization of export proceeds by Ms.Dhaneswara Overseas. The 2nd respondent in exercise of the powers under Regulation 13 of the Foreign Exchange Management Regulations 2000, RBI issued the orders agreeing for condonation of non-realization of export proceeds and writing off the outstanding amount subject to the condition of the exporter should surrender to the proportionate amount of incentives. Further, the appellant cannot claim the benefit of condonation under the said order unless the condition namely, surrender a proportionate amount of incentives to the Commissioner of customs has been complied with by the exporter concerned. However, the condition has not been complied with as stipulated in the order passed by the 2nd respondent, as such the appellant cannot seek to claim any benefit under the said order dated 23.02.2005 of the 2nd respondent, therefore the learned counsel entreats the Court to dismiss the above appeal.
19. Considering the factual position of the case and arguments advanced by the learned counsel on all sides and on perusing the impugned order passed by the 1st respondent, this Court does not find any discrepancy in the conclusion arrived at for dismissing the appeal. The view of this Court that the firm constituted by the family numbers and out of them no one stated that the appellant is retired from the said firm since 1997, as such the appellant is not liable to pay any penalty. Further, one of the partners Shri.Sharavan Kumar has stated in his statement before the 1st respondent herein that the appellant and two others are partners besides the appellant and another partner Shri.Sharavan Kumar were looking after the business and the day to affairs of the Company. Hence, the above appeal is dismissed the impugned order is confirmed. Consequently, connected miscellaneous petition is closed.
/ / 2013 Index : Yes. Internet : Yes. ub C.S.KARNAN, J. ub To 1.The Special Director, Enforcement Directorate, Government of India, 6th Floor, Lok Nayak Bhavan, Khan Market, New Delhi 110 003. 2.The General Manager, Reserve Bank of India, Foreign Exchange Department, Fort Glacis, Rajajai Salai, Chennai 600 001. Judgment made in C.M.A.No.1610 of 2008 and M.P.No.1 of 2008 / /2013