Ajay Prakash Lohia Vs Assistant Director (Appellate Tribunal Under SAFEMA Delhi)
SAFEMA Tribunal Sets Aside FEMA Penalty on Former Director; Holds Vicarious Liability Cannot Be Imposed Without Specific Role
The Appellate Tribunal under SAFEMA allowed the appeal filed by Ajay Prakash Lohia, setting aside the ₹6 lakh penalty imposed on him under Section 42(1) of the FEMA in relation to the failure of Uniworth International Ltd. to realise export proceeds. The case arose from the company’s failure to repatriate export proceeds running into substantial foreign currency amounts against several GR-1 Forms. The appellant contended that he had resigned as a director on 29 March 2001, that most exports were made after his resignation, and that he was never responsible for the day-to-day affairs of the company.
The Tribunal found merit in the appellant’s submissions. It noted that 16 out of the 26 GR-1 Forms related to exports made after the appellant had resigned, while in another case the statutory period for realisation of export proceeds had not even expired during his tenure. Consequently, at best, the appellant could have been linked to only a limited number of transactions. More importantly, the Tribunal observed that the Directorate had failed to identify the specific role of the appellant or establish that he was in charge of and responsible for the conduct of the company’s business when the alleged contraventions occurred.
Relying on judicial precedents including Girdharilal Gupta v. D.N. Mehta, Umesh Modi v. Deputy Director, Raman Narula v. Director, and Sayed Wahid v. Director of Enforcement, the Tribunal reiterated that vicarious liability under Section 42 of FEMA cannot be fastened merely because a person was a director. The Enforcement Directorate must specifically plead and prove that the director was responsible for the company’s day-to-day affairs and that the contravention occurred with his consent, connivance or neglect. Since even the Adjudicating Authority had recorded that the complaint did not specify the role of individual directors, the Tribunal held that the essential requirements for invoking Section 42 had not been satisfied. Accordingly, it set aside the penalty and allowed the appeal.
Cases Discussed
- Umesh Modi vs. Deputy Director (Delhi HC), (2015) 130 SCL 621 (Del)
- Raman Narula vs. Director (Delhi HC), (2014) 216 SCL 120 (Del)
- Girdharilal Gupta vs. DN Mehta (SC), AIR 1971 SC 28
- Sayed Wahid vs. Director of Enforcement, (1988) 37 Taxmann 16 (FERAB)
FULL TEXT OF THE JUDGMENT APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI
