Case Law Details
Sociedade De Fomento Industrial Pvt. Ltd. Vs Special Director Directorate of Enforcement (Appellate Tribunal Under SAFEMA Delhi)
FEMA Penalty in Iron Ore Export Case Partly Sustained – Alleged Under-Invoicing via Overseas Commission – Tribunal Reduces Penalty & Upholds Liability U/s 7
The SAFEMA Appellate Tribunal partly allowed the appeals of M/s Sociedade De Fomento Industrial Pvt. Ltd. & its Directors against FEMA penalties arising from alleged under-invoicing of iron ore exports through discounts linked to overseas “protective agent” commissions. The Enforcement Directorate alleged that commissions paid abroad formed part of the export value which was neither fully declared nor realised in India, resulting in contravention of FEMA.
The Tribunal observed that engagement of overseas agents, negotiated price reductions & admissions in statements supported the allegation that export value was reduced to accommodate commission payments. Voluntary payments before the Customs Settlement Commission were treated as a relevant circumstance against the assessee. However, it held that s.8 could not be invoked together with s.7, though liability under s.7 remained valid.
It was further held that penalty u/s 13 of FEMA is civil in nature & does not require mens rea. Directors were held liable u/s 42 as persons in charge of business. Considering proportionality & earlier customs settlement, penalties were substantially reduced to ₹40 lakh on the company, ₹4 lakh on the Managing Director & ₹2 lakh on the Director, with the appeals partly allowed.
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
This Order disposes of the Appeals Nos. FPA-FE-41/GOA/2020 filed by M/s Sociedade De Fomento Industrial Pvt. Ltd., FPA-FE-42/GOA/2020 filed by Shri Apoorva Misra, Director and FPA-FE-51/GOA/2020 filed by Shri Auduth Timblo, Managing Director, against the Order No. Adj/03/B/SDE/SK/WR/2020 dated 20.03.2020 (Impugned Order), passed by the Special Director, Directorate of Enforcement, Mumbai. The Ld. Adjudicating Authority (AA) imposed the penalty of Rs. 4,00,00,000/- on the Appellant Company M/s Sociedade De Fomento Industrial Pvt. Ltd., vide the Impugned Order for the contravention of Section 7 of the Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 3, 9 & 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 and Section 8 of the FEMA read with Regulation 3 of Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulation 2000, arising due to non-realization of the export proceeds to the extent of commission of the amount Rs. 38,14,34,971/- (USD 77,27,439) paid to the overseas agents. Penalty of Rs. 40,00,000/- was imposed on the Appellant Shri Auduth Timblo, Managing Director and Rs. 20,00,000/- was imposed on the Appellant Shri Apoorva Misra, Director for the aforementioned contraventions in terms of Section 42 of FEMA.
2. Ld. Counsel for the Appellants stated that the Appellant Company is in the business of export of Iron Ore. The export is carried out in two ways (a) sale under a Long-Term Contract (“LTC”) and (b) sale under a Spot Contract (Spot). The Customs Authorities received information that protective agents were engaged with respect to exports made by the Appellant Company. The Appellants were issued notices under the Customs Act, 1962 to furnish details of the protective agents appointed and of the amount of fees/commission paid, failing which the Appellants were warned that the authorities could approach the foreign buyers to elicit the information. While the Appellants had not engaged any protective agents, given the reputational risk, in allowing the Customs Authorities to write to the Appellant’s buyers, the Appellant Company volunteered to source information from its foreign buyers. It was under these circumstances, that the foreign buyers reverted with the information and copies of the invoices raised by their protective agents for 23 out of the 266 consignments shipped by the Appellant Company. Based on this information the Customs Authorities issued notices to the Appellants asking the Appellant to show cause why the fees/commission paid to the agents appointed by the foreign buyers should not be added to the value of the goods exported for the purposes of levy of customs duty. To avoid precipitation of the matter and on an honest belief that the matter would end, the Appellants approached the Settlement Commission to settle payment of the customs duty. The Appellant’s application to the Settlement Commission was accepted and the applicant was directed to pay Rs. 10,85,80,049/- along with interest of Rs. 3,97,89,340/-. A penalty of Rs. 32,00,000/- was also imposed and the Appellant was given immunity from any further penalty and prosecution. To the Appellant’s dismay, the information was passed on by the Customs Authorities to the authorities administering the FEMA, i.e. the Enforcement Directorate (ED).
3. Ld. Counsel for the Appellants contended that the core finding of the Ld. AA against the Appellant Company and its Directors is that since the Appellant has “borne” the fees/commission paid by the foreign buyers by way of giving a “discount” to the foreign buyers, to that extent of the discount given, there was under invoicing, which discount if not given would have resulted in higher consideration being received. Consequently, the allegation is that the full export value had not been declared. The Ld. AA based its aforementioned conclusion on the following:
a. The statement tendered by Shri Apoorva Misra that discounts were given to the foreign buyers on the initial offer to the extent of the fees paid to the protective agents.
b. The settlement of the demands raised by the Customs Authorities by the Settlement Commission under the Customs Act, 1962 amounted to the Appellants having accepted the violation committed.
4. Ld. Counsel for the Appellants made further submissions that the invoice price was the declared price. The invoiced price/declared price had been duly received by the Appellant Company within the time prescribed in law. The protective agents were appointed by the foreign buyers. The protective agents billed the foreign buyers for their services. There was no privity of contract between the Appellant and the protective agents. In other words, if the foreign buyer had not paid the protective agents, they could not have come to the Appellant for recovery of its fees. The sole allegation was that the Appellants had given discount to the foreign buyer equal to the fees paid by the foreign buyer to the protective agents, which discount if not given would have resulted in higher consideration being received and consequently the full export value had not been declared.
5. Ld. Counsel for the Appellants challenged the finding of the Ld. AA that the Appellant had borne the fees paid to the protective agents. Ld. Counsel submitted that the export of Iron Ore was made either through long term contracts or through spot contracts. In long term contracts the price was arrived at on the basis of objective mathematical formula based on the prices published on Platt’s Steel Index. There was no subjectivity or negotiation involved in it. Based on the sailing date, price calculation along with the Addendum was exchanged by the Appellant with the foreign buyer. It is emphasized that the price computed was exactly as per the formula. This demonstrated that the price under the Long-Term Contract was not subjected to any further negotiation and was purely based on the price formula agreed to under the Long-Term Contract. Ld. Counsel advanced the argument that it should be taken note of that if the Appellants did not indulge in grant of discount for Long Term Contracts, then why would they do so even in the Spot Contracts. The case of the Respondent that, had there been no discount the Appellant would have received higher consideration is unsustainable and must fail.
6. Ld. Counsel for the Appellants stated that in one of the Spot Contracts the Appellant had furnished the entire trail of correspondence with respect to the price negotiation exercise carried out, culminating into issuing of Addendum, based on which Invoice was issued and monies received. The correspondence showed that in one of the spot contracts offers were invited from 23 prospective buyers. Of the said 23 prospective buyers, 5 buyers responded of which 4 parties bid. Given that P. T. Resources Pty. Ltd.’s offer was the highest, an Addendum at the price offered viz. USD 135 was entered into with P. T. Resources Pty. Ltd. Based on this, invoices were raised, declarations were filed and monies received. The above absolutely belies the theory of the Respondents that there was a renegotiation of agreed price to factor discount. This establishes that the only price finally offered by the foreign buyer was USD 135 and the shipment was exported at the said price. This further establishes that the price agreed in spot contracts was the highest price offered to the Appellant which must be regarded as the price demonstrative of the full export value of the cargo. The case of the Respondent that, had there been no discount the Appellant would have received higher consideration does not hold good. This also goes to show that the statement of Shri Apoorva Misra cannot be used blindly and must be read in the facts of the case.
7. Ld. Counsel for the Appellants contended that discount is a perfectly normal practice in business of International Trade. In this regard, he cited the Judgment of the Hon’ble Supreme Court in the case of Eicher Tractors Ltd., Haryana vs. Commissioner of Customs [(2001) 1 SCC 315]. In the present case as well, there is no allegation of any foul play, the only evidence relied upon is the statement of Shri Apoorva Misra where he admits to having given a discount. As held by the Apex Court giving of discounts is normal. There is nothing to show that, had the alleged discount not been extended the foreign buyer would have agreed to pay a higher amount. On the contrary it is more reasonable to assume that the deal would have not been struck had the Appellant continued to ride high. The Respondent Directorate has made the allegations which have been confirmed in the Impugned Order purely on the basis of conjectures and surmises.
8. Ld. Counsel for the Appellants contended that in any case, the proceedings before the Settlement Commission are not adjudicatory proceedings and therefore the observations of the Settlement Commission are not at all conclusive and in any case not binding on this Hon’ble Tribunal. Ld. Counsel further argued that the Impugned Order could not have upheld violation of Section 8 of FEMA, having upheld violation of Section 7 of FEMA. Ld. Counsel cited the Judgment in the case of Bhupendra V. Shah in WP No. 19881 of 2004. He further argued that since a combined penalty has been levied for the contravention of Section 7 & 8, even the penalty for Section 7 cannot be upheld. Ld. Counsel further argued that the Impugned Order is time barred in terms of Section 16 (6) of FEMA. The Impugned Order has wrongly rejected this contention by invoking the proviso to Section 16 (6). Ld. Counsel alleged the absence of recorded reasons in spite of invocation of the proviso.
9. Ld. Counsel for the Appellants has pleaded that no penalty could be imposed on Shri Auduth Timblo, as he was the Managing Director and had no role to play. In so far as the statement of Shri Apoorva Misra, is concerned, the Ld. Counsel for the Appellants submitted that the Ld. AA has erred in selectively reading the statement, despite having noted what had been stated by Shri Apoorva Misra as also the context in which it was stated. It is pertinent to note here that Shri Apoorva Misra stated that the discount was given from the initial offer and that too if the offer after the discount was still higher than any other offer by any other bidder. Shri Apoorva Misra nowhere stated that had the discount not been given, the Appellants would have received higher consideration. He therefore pleaded that that there is no penalty imposable on the Director Shri Apoorva Misra.
10. Ld. Counsel for the Appellants submitted that the penalty under Section 13 of FEMA is quasi criminal in nature. He stated that the degree of proof required for the penalty must be such that the conclusion must not only be a possible conclusion, but must be the only conclusion that could be reached on the material before the Authorities. He cited the Judgments in UOI vs. Marcel Nevens, Shanti Prasad Jain vs. Director of Enforcement [(1962) SCC OnLine SC 167], Shashank Manohar vs. UOI [WP No. 5305 of 2013 (Bom)] and Hindustan Steel Ltd. He therefore pleaded to set aside the penalty and allow the Appeals.
11. Ld. Counsel for the Respondent Directorate stated that the Appellant Company indulged in under invoicing of Iron Ore Exports by diverting substantial portions of the export proceeds to overseas entities namely M/s Fallon Consultance Pvt. Ltd. and M/s Agrocom Ltd. These payments were, in fact, an integral part of the total sale price of the goods which was concealed from the Indian Authorities. Ld. Counsel argued that firstly, the Appellant Company violated its primary duty of disclosure. Section 7(1)(a) of FEMA, read with Regulation 3(1) of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, imposes an absolute obligation on every exporter to furnish a declaration containing the true and correct material particulars including the “full export value of the goods.” The Appellant Company systematically breached this obligation. The values declared in its GR/SDF forms were knowingly suppressed, as they excluded the substantial “commission” amounts paid by overseas buyers to the protective agents. These payments were an integral, pre-arranged component of the total consideration for the goods, and their omission rendered the declarations fundamentally false. Secondly, this false declaration directly resulted in the contravention of the core objective of FEMA, Section 8 of FEMA, read with Regulation 9 of the same regulations, which obligates an exporter to “realize and repatriate to India” the full amount of foreign exchange due. By engineering a scheme where a portion of the sale price was diverted offshore, the Appellant Company ensured that the full export value was never brought into the country. The diverted commission amounts represent foreign exchange that was due to India but was never realized or repatriated, constituting a direct and quantifiable violation of this cardinal provision.
12. Ld. Counsel for the Respondent Directorate contended that the case against the Appellants is reinforced by the admissions of the Company’s own key management personnel. This evidence is of profound significance, as it provides a direct confession thereby, demolishing any subsequent claims of a legitimate, arms-length business arrangement and establishing clear mens rea (even though mens rea is not a condition precedent for a contravention). The statement of Shri Apoorva Misra, the Director and Chief Financial Officer of the Company, recorded on 22.01.2016, provides an irrefutable account of the mechanics of the modus operandi. His admissions are not merely corroborative, but are conclusive about the discount having been given to compensate for payment of commission to the overseas buyers, from the original offer price. He confirmed that this discount was expressly intended to enable the overseas buyer to make a corresponding payment of “commission” to the overseas agents, M/s Fallon Consultance Pvt. Ltd. and M/s Agrocom Ltd. Critically, Shri Misra affirmed that “…the price shown in the sale contract was less than the price that was actually finalized with the overseas buyer as consideration for the export of goods. The difference between the actual price finalized… and the price shown… was utilized, by an arrangement… for making payment of commission to the overseas commission agent.” This admission by the Company’s own Director and CFO, provides an irrefutable confession to the mechanics of the entire modus operandi. It confirms-a-deliberate, pre-meditated-arrangement to split-the-transaction-and-conceal the true value from the authorities. The so-called “commission” was, in fact, a pre-arranged diversion of export proceeds and an integral part of the FOB value that was intentionally kept off the books in India.
13. Ld. Counsel for the Respondent submitted that the Customs Settlement Commission in its Order has held that the modus operandi adopted by the Appellant Company enabled it to save on Customs Duty. The Company under took such a convoluted scheme by artificially depressing the declared FOB and thereby reduced its Customs Duty liabilities. Moreover, the Appellant Company, in fact voluntarily deposited Rs. 10,85,80,049/- towards differential duty and Rs. 3,97,89,340/- as interest along with penalty of Rs. 32,00,000/-. In fact, this is admission by conduct and provides compelling evidence of culpability.
14. Ld. Counsel further argued that the Reserve Bank of India (RBI) Master Circular No. 09/2009-10 dated 01.07.2009, cited in the Impugned Order, outlines the legitimate procedure. It expressly permits an exporter to pay agency commissions by “deduction from invoice value.” This process requires the exporter to first declare the full export value on the GR/SDF form and then show the commission as a permissible deduction. The Appellant Company eschewed this transparent method for a clandestine route. They arranged for the buyer to pay the “commission” directly to an offshore agent, ensuring the amount never appeared on an Indian invoice or declaration form. The motive for this deliberate avoidance is self-evident. Following the prescribed RBI procedure would have forced them to declare the full, true export value to the Indian Authorities, thereby exposing their customs duty liability and preventing the illegal retention of foreign exchange abroad. The actions of the Appellant Company was not a technical or venial breach of procedure. Rather, they constituted a calculated scheme to under-report export values, evade statutory duties, and illegally retain foreign exchange outside of India. Ld. Counsel therefore pleaded to dismiss the Appeals.
15. We have carefully considered the rival submissions, both verbal and written, the pleadings made in the Appeals, the documents relied upon by the two sides, the Impugned Order and the cited Judgments. We find that it is not disputed that with respect to 23 consignments out of 266 consignments of Iron Ore that were exported between 2006-2013, the overseas agents namely M/s Fallon Consultance Pvt. Ltd., British Virgin Island and M/s Agrocom Ltd., Dubai were engaged. The said agents were the protective agents, who used to provide services like testing and analysis of the Iron Ore, both at the ports of loading and discharge. In case of any dispute, they helped in mediation and resolution of the dispute. These consignments were exported on FOB (free on board) basis.
16. The moot question is who paid for the engagement of the overseas agents with respect to the aforementioned 23 consignments for export. The Respondent Directorate has contended that the fees paid to the protective agents were indeed part of the normal value of the goods exported, as finalized between the seller and the buyer through mutual agreement. The Respondent has further contended that the commission agents though appointed by the foreign buyers were so done with the acquiescence of the seller. Thus, the difference between the actual price finalized with the overseas buyer and the price shown in the sale contracts was utilized by an arrangement of the buyer and the seller for making payment of commission to the overseas agents.
17. We find that the Impugned Order has relied upon the statement of Shri Apoorva Misra, Director of the Appellant Company, recorded under Section 37 of FEMA on 22.01.2016. Further the Impugned Order has relied upon the admission of the Appellant Company before the Bench of the Settlement Commission of Customs and Central Excise, Mumbai. In this regard paragraph 4 (ii) to (vi) of the Impugned Order are reproduced below:
“(ii) It was revealed from the Statement of Shri Apoorva Misra, Director of the Noticee (Appellant) Company was recorded under Section 37 of FEMA, 1999 on 22.01.2016 that Noticee Company had exported 266 consignments of iron ore during the period 2006-2012 and in 23 cases the Noticee Company had entered into a contract after negotiation at a price which was lower than the initial offer of the buyer which reflect current market scenario and the cost of appointment of the protective agent; that the overseas agent used to provide services like testing and analysis of the iron ore both at the load port and discharge port and in the event of any dispute they will assist or try to mediate in resolving the dispute; that the commission amount was paid directly by the buyers.
(iii) Therefore, it is revealed that, although the protective agents/commission agents were appointed by the buyer with the acquiescence of the seller, it is a fact that the fees paid to the agent was borne by the seller (Noticee Company) e. M/s Sociedade De Fomento Industrial Pvt. Ltd. and the transaction value of the export goods was reduced to that extent.
(iv) It is also appeared that the commission paid to the protective Agents were part of the value of the good exported. Had there been no Protective Agent, the fees paid to them would have been received by the seller. So, it is apparent that the fees paid to Protective agents are indeed part of the normal value of the goods as finalized between seller and buyer, which by mutual agreement has been kept out of the signed contact and have not been disclosed to the Customs Authorities in India at the time of export. Thus, M/s Sociedade De Fomento Industrial Pvt. Ltd. did not declare the actual FOB value of the export goods in respect of the abovementioned 23 shipments.
(v) Further, it may not be out place rather it would important to place on record the view of Bench of the Office of the Settlement Commission Additional Bench Customs and Central Excise, Mumbai that “the mere fact that the payment to the agent was done by the buyer and not by the applicant (Sociedade De Fomento Industrial Pvt. Ltd.) cannot be determinative of the issue. It appeared to be a clever method of saving on duties. Instead of the applicants paying the agent, the buyer was paying the agent on the applicant’s behalf and reducing the value of the goods to that extent. The applicants have not denied that they too benefitted from the appointment of the agents. Further, if the agent was providing service only to the foreign buyer what was the need to seek the concurrence of the applicants in appointing the agents? Further the invoice value was reduced to the extent of the commission itself. Hence the applicants cannot be absolved totally from the offence of undervaluation.”
(vi) Further M/s Sociedade De Fomento Industrial Pvt. Ltd. voluntarily deposited voluntarily deposited Rs. 10,85,80,049/- towards differential duty and Rs. 3,97,89,340/- as interest liability and imposed a penalty of Rs. 32,00,000/-. This amounts to accepting the violations committed by the Noticee Company as far as not reporting the correct FOB value.”
18. On the other hand, the Appellants have stated that in the 23 contracts, the Appellants submitted the entire trail of correspondence and attempted to demonstrate that the contract was awarded to the highest bidder for each of the 23 consignments exported. The Appellants contended that each of the shipment was exported at the said price, leaving no scope for payment of commission by the exporter. The Appellants also contended that the statement of Shri Apoorva Misra should be read in the context of the facts of the case. While Shri Misra may have stated that discount was given from the initial offer, he had nowhere stated that had the discount not been given, the Appellant would have received higher consideration. It was also stated by the Ld. Counsel for the Appellants that discount is a normal practice in domestic as well as international trade and there is no allegation of any foul play. It was also contended by the Appellants that the decision of the Settlement Commission are not binding on this Tribunal as the proceedings are not adjudicatory in nature.
19. The term FOB (Free on Board) is typically used so as to define the responsibility, risk and costs for goods which are being consigned from the seller to the buyer, as to what elements of the value of the goods are to be borne by the seller and by the buyer. Generally, the FOB is calculated as the cost of the goods plus all expenses incurred up to the moment the goods are loaded on to the ship. These expenses would not only include ex-factory price of the goods, but also transportation charges from the factory to the port and the packing charges. The expenses relating to loading charges and commission/brokerage charges are also included in the FOB value of the goods. The buyer takes over the costs and the expenses after the goods have been loaded on the ship. Thus, the Ocean Freight charges from the port of loading to the destination, the insurance during the transit and the import duties on arrival are to be borne by the buyer. The commission charges which are in dispute before us relate to payments made with respect to the services provided by the protective agents for testing and analysis of the Iron Ore, both at the ports of loading and discharge and in case of any dispute, help in mediation and resolution of the dispute. The Appellants have accepted the facts of the engagement of the protective agents. They have also not disputed the charter of work for which the protective agents were paid the fees. It is on record that the engagement of the protective agents was mutually agreed upon by the buyer and the seller. It cannot be denied that the FOB price was the basis for determining the amount of export duty which was required to be paid by the seller/exporter. Therefore, any deduction from the FOB price would have direct bearing on the amount of the export duty which was to be paid for each of the consignments.
20. We find that Shri Apoorva Misra who was the Director and Chief Financial Officer of the Appellant Company in his statement dated 22.01.2016 under Section 37 of FEMA has admitted that in the aforementioned 18 consignments the buyers had appointed protective agents to provide services both at load port and discharge port. Shri Misra stated that in all these cases the Appellant Company entered into contract after negotiation, striking a price which was lower than the initial offer made by the buyer. He further stated that in all these cases before agreeing to the discount from the original offer price, the Appellant Company had checked with the market if there was a buyer willing to buy the cargo, however, none was found as a buyer. We observe that even though Shri Misra may not have stated that had discount been not paid, the Appellant Company would have received the higher consideration, it is on record that the protective agents were engaged for services both at the ports of loading and unloading. It is also clear from his statements that the negotiated price was lower than the initial offer of the buyer. There is nothing before us as to explain the reasons that why higher price offered by the buyers could not be agreed upon.
21. While the observations made by the Customs Settlement Commission may not be binding on this Tribunal, it is a matter of record, which cannot be ignored, that the Appellants voluntarily deposited Rs. 10,85,80,049/- towards differential duty and Rs. 3,97,89,340/- as interest along with penalty of Rs. 32,00,000/-. The said deposits were in admission of the violations of the provisions of the Customs Act, 1962 for having mis-declared the FOB value. The explanation of the Appellants that the deposits were made to buy peace is not convincing since the Appellants cannot take two different stands for the same transactions before two separate Authorities.
22. We agree that Section 8 of FEMA could not have been invoked along with Section 7 as held in the W.P. (C) No. 19881 of 2004, W.P. (C) No. 26 of 2005 and W.P. (C) No. 1038 of 2005 in the matters of Bhupendra V Shah, Manohar Lal Tandon and Krishan Kumar Batta decided by the Hon’ble High Court of Delhi. We intend to take that into consideration, while deciding the amount of penalty payable by the Appellants. The arguments that no penalty could be imposed because one of the Section invoked jointly was not invocable cannot be accepted, since the invocation of the other Section viz Section 7 of FEMA read with Regulation thereunder are found to be valid. Ld. Counsel for the Appellants has also emphasized the provisions of Section 16 (6) of FEMA which stipulates as follows:
“16 (6) Every Adjudicating Authority shall deal with the complaint under sub-section (2) as expeditiously as possible and endeavour shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint:
Provided that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period.”
We observe that the provisions of the Sub-Section only urge the Ld. AA to dispose of the Complaint under Sub-Section 3 of Section 16 as expeditiously as possible. The Sub-Section in its proviso allows for disposing off the Complaint even after one year and for the purpose, the Ld. AA has to record periodically the reasons for such delay. We observe that the Ld. AA has already recorded his finding that the submissions made by the Appellants in this regard are not acceptable, in view of the said proviso. As such there is no basis to challenge the findings of the Ld. AA, since it is the same Authority which is supposed to have recorded the reasons for not having disposed of the Complaint within the recommended timeline in which it had to only make endeavours to dispose of.
23. Ld. Counsel for the Appellants has argued at length that why no penalty was imposable on Shri Auduth Timblo because he was merely the Managing Director of the Appellant Company without having been involved in the transactions under challenge. Further, it was contended that there is no positive evidence against Shri Apoorva Misra. The provisions of Section 42 are stated as follows:
“42. Contravention 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 the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the 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 shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention.
(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.
Explanation. —For the purposes of this section—
(i) “company” means anybody corporate and includes a firm or other association of individuals; and
(ii) “director”, in relation to a firm, means a partner in the firm.”
First and foremost, we note that we have found the Appellant Company to be liable for penalty. We find that Shri Auduth Timblo was admittedly the Managing Director of the Appellant Company during the relevant time. It cannot be the argument that the Appellant Company, a legal person, was running without the knowledge of the Managing Director. The provisions of Section 42 (1) of FEMA are clear and hence we hold Shri Auduth Timblo to be responsible for the conduct of the Company and liable for penalty. Nothing has been produced before us to show that the contravention occurred without the knowledge of either of the two individual Appellants. There is also nothing before us to show that all due diligence was exercised by the two individual Appellants. In so far as Shri Apoorva Misra is concerned, his own statements that he was responsible for the final negotiated price along with other personnel of the Company and his admission that the discounts were given cannot lead to his exoneration.
24. The arguments of the Appellants that no penalty could be imposed, since there was only a venial/procedural breach cannot be sustained. In this regard, the provisions of Section 13 (1) of FEMA are reproduced below:
“If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.”
Thus, there is nothing in the Section which can indicate directly or indirectly requirement of mens rea. Words like “willful”, “deliberately”, “intentionally” etc. are missing. The Hon’ble Supreme Court in the Judgment dated 23.05.2006 in the matter of The Chairman, SEBI v. Shriram Mutual Fund, [(2006) 5 SCC 361] has held:
“35. In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not.”
25. The Judgment (supra) in the matter of SEBI cited the Judgment in Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors. [MANU/SC/0300/1996] wherein even for FERA 1947 it was held that the contravention shall be breach of a civil obligation which would attract penalty irrespective of the fact whether the contravention was made with any guilty intention or not. The Judgment (supra) in the matter of SEBI, also cited a number of previous Judgments wherein it was held that mens rea is not an essential element for imposing penalty for breach of civil obligations. The Judgment (supra) has clarified that the case of Hindustan Steel Ltd. Vs. State of Orissa [1969 (2) Supreme Court Cases 627] pertained to criminal/quasi criminal proceeding as the provisions of the Act under consideration in that case imposed a punishment of imprisonment and fine as well. The present appeal deals with provisions which are strictly civil obligations and penalty for the contraventions of these provisions are imposable under Section 13 (1) of FEMA which provides for penalty only, up to thrice the sum involved in such contravention.
26. The Appellants have also pleaded that they have already suffered by virtue of the aforementioned Order of the Customs Settlement Commission. They pleaded for taking that into account to make the penalty proportionate, if in case the Appellants are found liable for penalty. Taking into consideration the facts and the circumstance of the present case, the ends of justice shall be met on imposition of penalty of Rs. 40,00,000/- on the Appellant Company and Rs. 4,00,000/- on the individual Appellant Shri Auduth Timblo and Rs. 2,00,000/- on the individual Appellant Shri Apoorva Misra. Pre-deposit of penalty amount paid by the Appellants shall be adjusted against the penalty imposed.
27. In view of the aforementioned discussions and analysis, we partly allow the Appeals Nos. FPA-FE-41/GOA/2020 filed by M/s Sociedade De Fomento Industrial Pvt. Ltd., FPA-FE-42/GOA/2020 filed by Shri Apoorva Misra, and FPA-FE-51/GOA/2020 filed by Shri Auduth Timblo. Applications pending, if any, are disposed of accordingly.
Author Bio
