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Designation of a person in a company is not only parameter for offences contemplated under Sec 68 SC



SHAILENDRA SWARUP vs. THE DEPUTY DIRECTOR, ENFORCEMENT DIRECTORATE – CRIMINAL APPEAL NO.2463 OF 2014

Bench: Justice Ashok Bhushan and Justice R. Subhash Reddy

Supreme Court on 27.07.2020 held that liability under Section 68 would depend upon the role one plays in a company and not his mere designation.

The Supreme Court in a proceeding against the Director of Modi Xerox Limited held that for the contravention under Section 68 of FERA, the necessary ingredient is that at the time of the commission of the offense the director was in charge and responsible for the conduct of the company’s business.

In the present case, The Enforcement Directorate issued a show cause notice to all the directors of the company for the alleged violations of Section 68 of FERA including the appellant, who was a practicing advocate of the Supreme Court. In response to the SCN, the appellant stated that he was only a part-time director and was never a part of the company’s conduct of business nor did he have an executive role in the company. After the hearing, the Enforcement Directorate imposed a penalty of Rs. 1,00,000 on all the directors including the appellant. The appellate tribunal, as well as the High Court, upheld the order.

The main issue before the Supreme Court was whether the adjudicating authority, the Appellate Tribunal, and the High Court erred in enforcing Section 68 on the appellant without any material that he was responsible for the conduct of the business of the company at the time of the commission of the offense.

The court held that the fact that the adjudicating authorities did not consider the material that the appellant was not involved in the conduct of the business and the company was affairs was erroneous. It was also noted that the adjudicating authority did not come to find as to the liability of the appellant for the contravention of the said provision.

The court while noting that Section 141 of Negotiable instruments act, 1981 was pari materia to Section 68 of FERA, 1973 held,

“Section 68(1) provides that “…every person who, at the time of 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…………..” Section 68(1) creates a legal fiction, i.e., “shall be deemed to be guilty”. The legal fiction triggers on fulfilment of conditions as contained in the section. The words “every person who, at the time of the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business” has to be given some meaning and purpose. The provision cannot be read to mean that whosoever was a Director of a company at the relevant time when contravention took place, shall be deemed to be guilty of the contravention. Had the legislature intended that all the Directors irrespective of their role and responsibilities shall be deemed to be guilty of contravention, the section could have been worded in a different manner. When a person is proceeded with for committing an offence and is to be punished, the necessary ingredients of the offence as required by Section 68 should be present.”

While making a note of Section 141 of Negotiable Instruments Act, 1981. The court held that,

“We may notice that Section 141 of the Negotiable Instruments Act, which was inserted in Negotiable Instruments Act by amendment in the year 1988 contains the same conditions for a person to be proceeded with and punished for offence as contained in Section 68 of FERA, 1973. Section 141(1) of Negotiable Instruments Act uses the same expression “every person, who, at the time the offence 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 offence”. Section 68 of FERA, 1973 as well as Section 141 of the Negotiable Instruments Act deals with the offences by the companies in the same manner. The ratio of the judgments of this Court on Section 141 of the Negotiable Instruments Act as noted above are also clearly relevant while interpreting Section 68 of the FERA Act. We, thus, hold that for proceeding against a Director of a company for contravention of provisions of FERA, 1973, the necessary ingredient for proceeding shall be that at the time offence was committed, the Director was in charge of and was responsible to the company for the conduct of the business of the company. The liability to be proceeded with for offence under Section 68 of FERA, 1973 depends on the role one plays in the affairs of the company and not on mere designation or status.”

With respect to Section 51 of the FERA, 1973 the court held that even though FERA does not contemplate the filing of a written complaint the court held that the person has to be informed of the contravention for which the penalty proceedings are initiated.

“Even though FERA, 1973 does not contemplate the filing of a written complaint but in proceedings, as contemplated by Section 51, the person, who has to be proceeded with, has to be informed of the contravention for which penalty proceedings are initiated. The expression “after giving that person a reasonable opportunity for making a representation in the matter” as occurring in Section 51 itself contemplate due communication of the allegations of contravention and unless allegations contains complete ingredients of offence within the meaning of Section 68, it cannot be said that a reasonable opportunity for making a representation in the matter has been given to the person, who is to be proceeded with.”

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CRIMINAL APPEAL NO.2463 OF 2014
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