Holding

Liability under section 68 of FERA (and the analogous provision in the Negotiable Instruments Act) is limited to persons who, at the time of the contravention, were in charge of and responsible to the company for the conduct of its business; mere designation as a director is insufficient.

Summary

Modi Xerox Ltd. made foreign exchange remittances in 1985 and was served a show‑cause notice under the Foreign Exchange Regulation Act, 1973 (FERA) against the company and its directors. One of the directors, Shailendra Swarup, contended that he was a part‑time, non‑executive director and had no responsibility for the company’s business. He filed a written representation on 29‑Oct‑2003, supported by an affidavit of the company secretary, asserting his limited role. The adjudicating officer nonetheless imposed a penalty of Rs 1,00,000 on him under sections 8(3), 8(4) and 68 of FERA, a decision upheld by the Appellate Tribunal and the Delhi High Court. The Supreme Court held that liability under section 68 (and the analogous provision in the Negotiable Instruments Act) attaches only to persons who, at the time of the contravention, were in charge of and responsible to the company for the conduct of its business; mere directorship or designation is insufficient. The Court also ruled that the appellant’s representation and the secretary’s affidavit were proper material that must be considered, and that the adjudicating authority erred by imposing a penalty without a specific finding of responsibility. Consequently, the penalty was set aside and the appeal allowed.

Issues considered

The applicability of section 68 of the Foreign Exchange Regulation Act, 1973 to a part‑time, non‑executive director.
Whether the appellant's written representation dated 29‑Oct‑2003 constitutes an after‑thought that can be disregarded.
Whether the adjudicating officer was required to make a specific finding that the director was in charge of and responsible for the company's conduct before imposing a penalty.
Whether the procedural requirements of section 51 of FERA, including giving a reasonable opportunity to make a representation, were satisfied.

Legislation cited

Companies Act, 1956s. 291
Foreign Exchange Regulation Act, 1973s. 50, s. 51, s. 68, s. 8(3), s. 8(4)
Negotiable Instruments Act, 1881s. 141

Subjects

Foreign Exchange Regulation ActSection 68Director liabilityPart‑time directorVicarious liabilityPenaltyAdjudication proceedingsShow‑cause noticeRepresentationDue process

Judgment

[2020] 7 S.C.R. 89 89

SHAILENDRA SWARUP A
v.
THE DEPUTY DIRECTOR, ENFORCEMENT DIRECTORATE
(Criminal Appeal No. 2463 of 2014)
JULY 27, 2020 B

[ASHOK BHUSHAN AND R. SUBHASH REDDY, JJ.]
Foreign Exchange Regulation Act, 1973:
ss.8(3), 8(4), 50, 51 and 68 – Show cause notice for initiation
for proceedings u/s. 51 against Company and its Directors for C
contravention of ss. 8(3) r/w 8(4) and 68 – Reply by the Company –
Initiation of proceedings – Appellant (one of the Directors) replied
that he was a part-time, non-executive Director and was not
responsible for the conduct of business of the Company at the relevant
time – Penalty imposed by Enforcement Directorate – Appeal before
D
Appellate Tribunal for Foreign Exchange dismissed – High Court
also dismissed the appeal – Appeal to Supreme Court – Held: The
liability to proceed with for the offence u/s. 68 depends on the role
played in the affairs of the Company and not on mere designation
or status – For proceeding against Director of a Company for
contravention of provisions of the Act, the necessary ingredient for E
proceeding shall be that the Director was incharge of and was
responsible for the conduct of the business of the Company at the
relevant time – Penalty was imposed on the appellant-Director
without returning a finding that it was he who was liable for
contravention of the provisions of ss. 8(3), 8(4) and 68 – Therefore,
F
the penalty imposed on the appellant is set aside.
Allowing the appeal, the Court
HELD: 1. The High Court committed error in observing
that plea taken by the appellant in its reply dated 29.10.2003 was
afterthought, since, no such plea was taken in reply to the show G
cause notice dated 19.02.2001. The notice dated 19.02.2001
although was addressed to the Company and all its Directors,
the reply was given only by the Company Secretary and none of
the Directors has given any reply. The notice dated 19.02.2001
was issued by the Deputy Director, Enforcement Directorate to
H
89
90 SUPREME COURT REPORTS [2020] 7 S.C.R.

A decide as to whether the adjudication proceedings as
contemplated in Section 51, of Foreign Exchange Regulation Act,
1973 (FERA, 1973) should be held against the Directors for
contravention. When the Deputy Director decided to hold the
adjudication proceedings under Section 51 reply given in response
to the notice dated 08.10.2003 was statutorily required to be
B
considered under Section 51 and the said reply could not have
been ignored or knocked down by an erroneous assumption that
it was an afterthought. 29.10.2003 was the date fixed by the
adjudicating officer for personal hearing of the Directors. The
appellant had not submitted any reply to show cause notice dated
C 19.02.2001 which though was addressed to the Company and all
Directors and the reply was sent only by the Company Secretary
on 26.03.2001. The representation dated 29.10.2003 was the first
representation submitted by the appellant before the adjudicating
officer during course of personal hearing. What is said by a person
who is called for personal hearing even though given in the form
D
of written representation dated 29.10.2003 required to be
considered by the adjudicating officer otherwise the personal
hearing shall become an empty formality and meaningless,
specially when what was said by the appellant in his representation
dated 29.10.2003 in no manner contradicted the reply 26.03.2001
E sent by the Company Secretary. Thus, the written representation
dated 29.10.2003 submitted by appellant required due
consideration and the High Court erred in discarding it as an
afterthought. [Para 16][101-G-H; 102-A-E]
2. The view of the High Court that the affidavit dated
F 04.07.2003 of the Company Secretary had not been filed either
before the Adjudicating Authority or the Appellate Tribunal nor
any such plea was taken in the earlier communications is neither
correct nor based on materials on the record. The adjudicating
officer in its order dated 31.03.2004 has noted the reply dated
29.10.2003 on behalf of the appellant. The reply dated 29.10.2003
G has been brought on the record of the paper book as Annexure
P-4. In paragraph 10(1) of the reply dated 29.10.2003, the affidavit
filed by the Company Secretary has been relied which was also
enclosed with the reply as Annexure “C”. Thus, the affidavit of
Company Secretary dated 04.07.2003 clearly stating that the
H appellant who was Director of the erstwhile Company was only a
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 91
ENFORCEMENT DIRECTORATE

part time Director of the said Company and was never in charge A
of the day to day business of the Company was very much on the
record of the adjudicating officer. Thus, the material was brought
by the appellant on the record that he was a part-time, non-
executive Director not in charge of the affairs of the Company at
the relevant time, which was erroneously refused to be considered.
B
[Paras 17-20 & 22][102-F; 103-A-B; 104-A-B, D]
3.1 The adjudicating officer has imposed the penalty without
returning a finding that it was the appellant who was liable for
contravention of the provisions of Section 8(3), 8(4) and Section
68 of the FERA, 1973. No finding has been returned by the
C
Appellate Tribunal that the appellant was not a part-time, non-
executive Director and was responsible for the conduct of business
of the Company at the relevant time. The order of the adjudicating
officer, thus, is unsustainable. The Appellate Tribunal has also
not considered the plea of the appellant and by making general
observation that management of the Company is to be handled D
by the Board of Directors, hence, the appellant being Director is
held guilty. [Paras 25-26][106-F-G]
S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and
Another, (2005) 8 SCC 89 : [2005] 3 Suppl. SCR 371 –
relied on. E
3.2 Section 68 of FERA, 1973 deals with “Offences by
companies”. 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 F
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 G
role and responsibilities shall be deemed to be guilty of
contravention, the section could have been worded in different
manner. When a person is proceeded with for committing an
offence and is to be punished, necessary ingredients of the offence
as required by Section 68 should be present. For proceeding H
92 SUPREME COURT REPORTS [2020] 7 S.C.R.

A 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
B
one plays in the affairs of the company and not on mere designation
or status. [Paras 37-38][113-E-H; 114-D-E]
N. K. Wahi v. Shekhar Singh and others (2007) 9 SCC
481 : [2007] 3 SCR 883; National Small Industries
Corporation Limited v. Harmeet Singh Paintal and
C another (2010) 3 SCC 330 : [2010] 2 SCR 805; Pooja
Ravinder Devidasani v. State of Maharashtra and
Another (2014) 16 SCC 1 : [2014] 14 SCR 1468;
National Small Industries Corporation Limited v.
Harmeet Singh Paintal and Another (2010) 3 SCC 330:
D [2010] 2 SCR 805 – relied on.
N. Rangachari v. Bharat Sanchar Nigam Ltd. (2007) 5
SCC 108 : [2007] 5 SCR 329 – distinguished.
3.3 In FERA, 1973 for imposing a penalty under Section
50, the adjudicating officer is required to hold an enquiry after
E giving the person a reasonable opportunity for making a
representation in the matter. Even though, FERA, 1973 does not
contemplate 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
F 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 contemplates 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
G opportunity for making a representation in the matter has been
given to the person, who is to be proceeded with. [Para 39]
[114-F-H; 115-A]
3.4 It is correct that FERA, 1973 does not contemplate
any complaint but the Scheme of the Act indicates that a person,
H
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 93
ENFORCEMENT DIRECTORATE

who is to be proceeded with, has to be made aware of the necessary A
allegations, which may constitute an offence on his part. A person
in the commercial world having a transaction with company is
entitled to presume that the Directors of the company are in
charge of the affairs of the company. But the presumption of a
person in the commercial world is a rebuttable presumption and
B
when adjudicating authority proceeds to impose a penalty for a
contravention of FERA, 1973, essential ingredients constituting
an offence under the FERA read with Section 68 has to be
communicated to the person proceeded with to enable him to
make effective representation in the matter. [Para 40][115-B-C]
3.5 An order which was passed on 13.02.2004 by the Deputy C
Director in adjudication proceedings although with regard to
different period, the plea of the appellant that he was only a part-
time, non-executive Director and not responsible of the conduct
of business of the Company was accepted and notice was
discharged against the appellant. The order dated 13.02.2004 D
although related to different period but has categorically noticed
the status of the appellant as part-time non-executive Director.
There being decision of Adjudicating Authority, in the recent past,
passed on 13.02.2004, that the appellant was only a part-time non-
executive Director of MXL, there has to be some reasons for E
taking a contrary view by the adjudicating officer in order dated
31.03.2004 with regard to affairs of the same company. [Para
42][115-F-H; 116-A]
4. Therefore, the adjudicating officer has erroneously
imposed penalty on the appellant for the alleged offence under F
Section 8(3), 8(4) and 68 of the FERA, 1973 which order was
erroneously affirmed both by the Appellate Tribunal and the High
Court. [Para 43][116-B]
Case Law Reference
[2005] 3 Suppl. SCR 371 relied on Para 27 G
[2007] 3 SCR 883 relied on Para 31
[2010] 2 SCR 805 relied on Para 31
[2014] 14 SCR 1468 relied on Para 31
H
94 SUPREME COURT REPORTS [2020] 7 S.C.R.

A [2007] 5 SCR 329 distinguished Para 32
[2010] 2 SCR 805 relied on Para 35
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
2463 of 2014.
B From the Judgment and Order dated 18.11.2009 of the High Court
of Delhi at New Delhi in Crl. A. No. 575 of 2008.
C.A. Sundaram, Kailash Vasdev, Sr. Advs., Ms. Rohini Musa,
Jagjit Singh Chhabra, Saksham Maheshwari, Abhishek Gupta, Advs. for
the Appellant.
C K.M. Nataraj, ASG, Ms. Shirin Khajuria, Ms. Ranjana Narayan,
B. Krishna Prasad, Advs. for the Respondent.
The Judgment of the Court was delivered by
ASHOK BHUSHAN, J.
D 1. This appeal has been filed against the judgment of Delhi High
Court dated 18.11.2009 dismissing the Criminal Appeal filed by the
appellant by which appeal the judgment dated 26.03.2008 of the Appellate
Tribunal for Foreign Exchange in Appeal No.622 of 2004 filed by the
appellant was challenged.
E 2. Brief facts of the case giving rise to this appeal are:
2.1 Modi Xerox Ltd.(MXL) was a Company registered under the
Companies Act, 1956 in the year 1983. Between the period 12.06.1985-
21.11.1985, 20 remittances were made by the Company-MXL through
its banker Standard Chartered Bank. The Reserve Bank of India issued
F a letter stating that despite reminder issued by the Authorised Dealer,
MXL had not submitted the Exchange Control copy of the custom bills
of Entry/Postal Wrappers as evidence of import of goods into India.
Enforcement Directorate wrote to MXL in the year 1991-1993 for
supplying invoices as well as purchase orders. MXL on 09.07.1993
provided for four transactions and Chartered Accountant’s Certificates
G for balance 16 amounts for which MXL’s Bankers were unable to trace
old records dating back to 1985. MXL amalgamated and merged into
Xerox Modicorp Ltd. (hereinafter referred to as “XMC”) on 10.01.2000.
A show cause notice dated 19.02.2001 was issued by the Deputy
Director, Enforcement Directorate to MXL and its Directors, including
H
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 95
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

the appellant. The show cause notice required to show cause in writing A
as to why adjudication proceedings as contemplated in Section 51 of
Foreign Exchange Regulation Act, 1973 (hereinafter referred to as
“FERA, 1973”) should not be held for contravention. Xerox Modi
Corporation Ltd. (successor of MXL) replied the show cause notice
dated 19.02.2001 vide its letter dated 26.03.2001. The Directorate of
B
Enforcement decided to hold proceedings as contemplated in Section 51
of the FERA, 1973 read with Section 3 and 4 of Section 49 of FEMA
and fixed 22.10.2003 for personal hearing. Notice dated 08.10.2003 was
sent to MXL and its Directors. Notice dated 08.10.2003 was replied by
the appellant vide its detailed reply dated 29.10.2003. In the reply the
appellant stated that he is a practicing Advocate of the Supreme Court C
and was only a part-time, non-executive Director of MXL and he was
never in the employment of the Company nor had executive role in the
functions of the Company. It was further stated that the appellant was
never incharge of nor ever responsible for the conduct of business of
the Company. Along with the reply an affidavit of the Company Secretary
D
dated 04.07.2003 that the appellant who was the Director of erstwhile
Company-XML was only a part-time, Director of the said Company and
never incharge of day to day business of the Company was also filed.
The MXL has also submitted a reply dated 29.10.2003. The Deputy
Director, Enforcement Directorate after hearing the appellant, other
Directors of the Company passed an order dated 31.03.2004 imposing a E
penalty of Rs.1,00,000/- on the appellant for contravention of Section
8(3) read with 8(4) and Section 68 of FERA, 1973.
2.2 Aggrieved by the order dated 31.03.2004 imposing penalty of
Rs.1,00,000/- on the appellant, Appeal No.622 of 2004 was filed by the
appellant before the Appellate Tribunal for Foreign Exchange which F
appeal came to be dismissed by the Appellate Tribunal on 26.03.2008.
Against the order of the Appellate Tribunal dated 26.03.2008, Criminal
Appeal No.575 of 2008 was filed by the appellant in Delhi High. The
Delhi High Court by the impugned judgment dated 18.11.2009 has
dismissed the appeal of the appellant, questioning which judgment this
appeal has been filed. G

3. The High Court, in Criminal Appeal, during pendency of the
appeal has stayed the order of penalty. This Court while issuing notice
on 19.02.2010 in the present appeal had also stayed the order of penalty
imposed on the appellant.
H
96 SUPREME COURT REPORTS [2020] 7 S.C.R.

A 4. We have heard Shri C.A. Sundaram, learned senior counsel
for the appellant and Shri K.M. Nataraj, learned Additional Solicitor
General for the respondent.
5. Shri C.A. Sundaram, learned senior counsel for the appellant
submits that the High Court dismissed the appeal of the appellant holding
B that reply dated 29.10.2003 of the appellant taking the plea that he was
only a part-time Director was only an afterthought. The High Court
further held that the affidavit dated 04.07.2003 of the Company Secretary
relied by the appellant does not appear to have been filed either before
the Adjudicating Authority or the Appellate Tribunal and no such plea
had been taken in the earlier communications. Shri Sundaram submits
C that the High Court committed error in dismissing the appeal of the
appellant whereas neither there was any material nor any specific case
of the Department that the appellant was incharge of and responsible
for the conduct of business of the Company. The mere fact of Company-
MXL in its reply to the notice dated 19.02.2001 having given the names
D of the 13 persons as Directors of MXL does not amount to stating that
all the Directors were responsible for the conduct of business of the
Company. The appellant could have been prosecuted and punished for
the contravention of the provisions of FERA, 1973 only after returning a
finding that it was the appellant who was responsible for the conduct of
business during the relevant period when remittances in question were
E made by MXL. The Appellate Tribunal without recording any finding
that appellant was incharge of the affairs of the Company held the
appellant liable, observing that there is nothing on record to show that
any restriction was placed on the powers of the appellants as Directors
of the Company with reference to subject transactions. The Adjudicating
F Authority although noticed the detailed reply given by the appellant dated
29.10.2003 but without returning any finding that the appellant was
Director who was responsible for working of MXL at the relevant time
imposed the penalty only relying on the letter of the Company Secretary
where names of the persons who were in the Board of Directors were
mentioned.
G
6. Shri Sundaram further submits that with regard to a subsequent
transaction, proceedings were initiated against the appellant in respect
to transaction of MXL where the plea of the appellant that he was only
a part-time, non-executive Director and had no executive role or function
in the Company was accepted and proceedings were dropped insofar as
H
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 97
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

the appellant is concerned by order dated 13.02.2004 which order clearly A
noticed the status and role of the appellant.
7. Learned Additional Solicitor General refuting the submissions
of the counsel for the appellant contends that penalty has rightly been
imposed on the appellant. He submits that admittedly the appellant was
Director during the relevant period which fact was admitted too in the B
reply given to the show cause notice. The show cause notice was issued
against all the Directors including the appellant and no effort has been
made by the appellant to disprove the allegations made against him.
Learned Additional Solicitor General submits that there needs no specific
complaint in proceedings of FERA, 1973 as opposed to complaint under
Negotiable Instruments Act. When the proceedings have been initiated C
under Section 51 of the FERA, 1973, the burden is on the appellant to
prove that he had no role to play on behalf of the Company.
8. Learned counsel for the parties have placed reliance on few
decisions of this Court which shall be referred to while considering the
submissions of the parties in detail. D

9. From the submissions made by the parties and materials on
records following points arise for determination in this appeal:
(1) Whether the plea taken by the appellant in its reply dated
29.10.2003 that he was only a part-time, non-executive E
Director and was never incharge of nor even responsible
for the conduct of business of the Company at the relevant
time was an afterthought, since, in the reply given by the
Company Secretary dated 26.03.2001 no such plea was
taken?
F
(2) Whether the appellant has not brought any material on record
either before the Adjudicating Authority or the Appellate
Tribunal to prove that he was only a part-time, non-executive
Director not responsible for the conduct of business of the
Company at the time of commission of the offence?
G
(3) Whether the Adjudicating Authority, Appellate Tribunal and
the High Court erred in holding contravention of provisions
of Section 8(3), 8(4) and Section 68 of FERA, 1973 by the
appellant without their being any material that the appellant
was responsible for the conduct of business of the Company
H
98 SUPREME COURT REPORTS [2020] 7 S.C.R.

A at the time of commission of the offence and without
recording any specific findings to that effect?
POINT NO.1
10. As noted above, the High Court has rejected the plea of the
appellant that he was part-time, non-executive Director not responsible
B for the conduct of business of the Company at the relevant period on the
ground that the above plea is an afterthought since in reply given by the
Company Secretary to show cause notice dated 19.02.2001 no such
plea was taken.
11. We may first notice the show cause notice dated 19.02.2001.
C The show cause notice dated 19.02.2001 was given to the MXL and all
Directors of MXL and along with show cause notice Annexure ‘B’ was
a list of Directors of MXL where the name of the appellant was also
included at Serial No.12. It is relevant to notice following portion of the
show cause notice:
D “AND WHEREAS it further appears that S/Shri – As per
Annexure B Proprietor, Partner(s)/Manager/Secretary of the said
company/firm has been responsible/supervisor/ incharge of the
said company/firm for the conduct of business of the company/
firm at the relevant time when the aforesaid import was made as
E such he/she/they has/have rendered himself/herself/themselves
liable also to be proceeded against under Section 50 of the Foreign
Exchange Regulation Act, 1973 (46 of 1973).
NOW THEREFORE, the said M/s Modi Xerox Ltd. as well as
its Directors of the above address are hereby required to show
F cause in writing (in duplicate) within thirty days from the date of
receipt of this Memorandum as to why adjudication proceedings
as contemplated in Section 51 of the Foreign Exchange Regulation
Act, 1973 (46 of 1973) should not be held against them for the
aforesaid contravention.”
12. The show cause notice, thus, asked the Directors to show
G
cause as to why adjudication proceedings as contemplated in Section 51
of the FERA, 1973 should not be held against them. The reply to the said
notice was sent only by the Company through Acting Company Secretary
dated 26.03.2001. The Deputy Director, Enforcement Directorate after
considering the reply to show cause by XMC’s vide letter dated
H 26.03.2001 decided to hold adjudication proceedings as contemplated in
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 99
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

Section 51 of FERA, 1973. Adjudication notice dated 08.10.2003 was A
issued by Deputy Director, Enforcement asking the Directors to appear
for personal hearing on 22.10.2003. It is relevant to reproduce the contents
of the notice dated 08.10.2003 which are to the following effect:
“DIRECTORATE OF ENFORCEMENT
FOREIGN EXCHANGE MANZMENTNT B
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
GOVERNMENT OF NDIA

HEAD QUARTERS OFFICE,
6TH FLOOR LOK NAYAK BHAWAN, C
KHAN MARKET NEW DELHI -110 003.
F.NO.T4.2O/DZ/2001/DD(AV)VM/4571 DATE 8/10/2003
From
The Deputy Director of Enforcement D

To
M/s Modi Xerox Ltd.
Ground Floor, Hemkunt Tower, E
98 Nehru Place,
N. Delhi -19

And its Directors [As per fist attached].
F

Dear Sir /Madam,
Subject: Adjudication proceedings in respect of Memo No. T-4/
20/D2/2001 (SCN.) Dated 19/2/2001
This is to inform you that after considering the cause shown by G
you in/as you have failed to reply to the above mentioned
memorandum the Deputy Director of Enforcement is of the opinion
the Adjudication proceeding as contemplated in Section 51 of
FERA, 1973 read with Section 3 & 4 of section 49 of FEMA,
1999 should be held against you in accordance with the procedure
H
100 SUPREME COURT REPORTS [2020] 7 S.C.R.

A laid shown in Rules of the Adjudication Proceedings & Appeal
Rules, 1974 and has accordingly fixed this case for personal
hearing before him on 22 Oct. 2003 [22nd OCT. 2003] at 12:30
pm in the office of this Directorate at the above mentioned address.
Now, therefore, you are hereby given an opportunity to present
B yourself either personally or through your lawyer or other
authorised representative before the Deputy Director of
Enforcement for personal hearing on the aforesaid date, time and
place.
You may please note that in case you fail to appear before the
C Adjudication Authority on the aforesaid date he may proceed with
the enquiry in your absence and pass Adjudication Order on the
basis of material and evidence available to him.
Your attention in this connection is invited to the provisions to
Rule 3 of the Adjudication Proceedings & Appeal Rules, 1974
D read with section 3 & 4 of section 49 of FEMA ,1999 whereby in
case it is decided to hold Adjudication Proceedings personal hearing
of the case could be waived at your request. In case you prefer to
waive personal hearing you may intimate accordingly so that the
case may be decided without your personal attendance on the
basis of available evidence.
E
Yours faithfully,
Sd/-
For Deputy Director”
13. We may also notice the provisions of Section 51 of FERA,
1973, which is to the following effect:-
F
“Section 51. Power to adjudicate.—For the purpose of adjudging
under section 50 whether any person has committed a
contravention of any of the provisions of this Act (other than those
referred to in that section) or of any rule, direction or order made
thereunder, the adjudicating officer shall hold an inquiry in the
G prescribed manner after giving that person a reasonable
opportunity for making a representation in the matter and if, on
such inquiry, he is satisfied that the person has committed the
contravention, he may impose such penalty as he thinks fit in
accordance with the provisions of that section.”
H
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 101
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

14. The provisions of Section 51 as noted above oblige the A
adjudicating officer to hold an inquiry in the prescribed manner after
giving that person a reasonable opportunity for making a representation
in the matter.
15. When notice dated 08.10.2003 was given for adjudication
proceedings it was obligatory for the adjudicating officer to give B
opportunity for making representation. In response to the notice dated
08.10.2003 the appellant has submitted a detailed reply dated 29.10.2003.
In his reply the appellant apart from other facts stated following:
“1. The undersigned is a practicing Advocate of the Hon’ble
Supreme Court of India and was only a part-time, non-executive C
Director of erstwhile Modi Xerox Limited and was never in its
employment nor ever had any executive role or function in the
said Company. Further the undersigned was never in charge of
nor ever responsible for the conduct of the business of the Company
MXL nor did the Noticee ever had any executive role or function
in the company. D

2. The undersigned Noticee had not at any stage been involved in
any discussions or decisions relating to the import by the said
Company and never issued any instructions to any banker or any
other functionary of MXL to get any remittance affected out of
India for any import. E

3. The Notices was neither in charge of nor ever responsible for
conduct of the day to day business of MXL.”
16. The representation dated 29.10.2003 was, thus, first
representation submitted by the appellant in response to adjudication F
notice and the plea taken by the appellant that he was only a part-time,
non-executive Director of erstwhile MXL and was never incharge of
nor even responsible for the conduct of business of the Company was
the plea taken first time by the appellant and could not have been termed
either as afterthought or denied consideration. The High Court committed
error in observing that plea taken by the appellant in its reply dated G
29.10.2003 was afterthought, since, no such plea was taken in reply to
the show cause notice dated 19.02.2001. As noted above the notice
dated 19.02.2001 although was addressed to the Company and all its
Directors, the reply was given only by the Company Secretary and none
of the Directors has given any reply. The notice dated 19.02.2001 was
H
102 SUPREME COURT REPORTS [2020] 7 S.C.R.

A issued by the Deputy Director, Enforcement Directorate to decide as to
whether the adjudication proceedings as contemplated in Section 51
should be held against the Directors for contravention. When the Deputy
Director decided to hold the adjudication proceedings under Section 51
reply given in response to the notice dated 08.10.2003 was statutorily
required to be considered under Section 51 and the said reply could not
B
have been ignored or knocked down by an erroneous assumption that it
was an afterthought as has been done by the High Court. 29.10.2003
was the date fixed by the adjudicating officer for personal hearing of the
Directors. The appellant had not submitted any reply to show cause
notice dated 19.02.2001 which though was addressed to the Company
C and all Directors and the reply was sent only by the Company Secretary
on 26.03.2001. The representation dated 29.10.2003 was the first
representation submitted by the appellant before the adjudicating officer
during course of personal hearing. What is said by a person who is
called for personal hearing even though given in the form of written
representation dated 29.10.2003 required to be considered by the
D
adjudicating officer otherwise the personal hearing shall become an empty
formality and meaningless, specially when what was said by the appellant
in his representation dated 29.10.2003 in no manner contradicted the
reply 26.03.2001 sent by the Company Secretary. We, thus, are of the
considered opinion that written representation dated 29.10.2003 submitted
E by appellant required due consideration and the High Court erred in
discarding it as an afterthought.
POINT NO.2
17. We may further note that the High Court in its judgment has
observed that affidavit relied upon by the appellant dated 04.07.2003 of
F the Company Secretary had not been filed either before the Adjudicating
Authority or the Appellate Tribunal nor any such plea was taken in the
earlier communications. This has been observed in paragraph 17 of the
impugned judgment, which is to the following effect:
“17. It was only as an afterthought and later on that the petitioner
G in his subsequent reply dated 29.10.2003 took up a plea that he
was only a part time director and relied upon an affidavit dated
4.7.2003 of the Company Secretary Mukesh Dugar which even
otherwise does not appear to have been filed either before the
Adjudicating Authority or the Appellate Tribunal. No such plea
H had been taken in any of the earlier communications.”
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 103
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

18. The above view of the High Court is neither correct nor based A
on materials on the record.
19. The adjudicating officer in its order dated 31.03.2004 has noted
the reply dated 29.10.2003 on behalf of the appellant. The reply dated
29.10.2003 has been brought on the record of the paper book as Annexure
P-4. In paragraph 10(1) of the reply dated 29.10.2003, the affidavit filed B
by the Company Secretary has been relied which was also enclosed
with the reply as Annexure “C”. Affidavit of the Company Secretary
dated 04.07.2003 which was enclosed with the reply was to the following
effect:
“AFFIDAVIT C
I, Mukesh Dugar son of Sh. S.R. Dugar and presently the
Company Secretary & Head – Legal of Xerox Modicorp Limited
having its registered office at 109, Shivalik Apartments, Sector 3,
Noida, Distt. Gautam Budh Nagar, Uttar Pradesh do hereby
solemnly affirm and state as follows: D
1. That Modi Xerox Limited has since been merged into Xerox
Modicorp Limited vide orders dated 10.01.2000 and 21.01.2000
of Hon’ble Allahabad High Court.
2. That Mr. Shailendra Swarup, who was a Director of the
E
erstwhile Modi Xerox Limited was only a part time Director
of the said Company and was never in charge of the day to
day business of the Company.

Place Gurgaon Sd/- F
Date 4/7/2003 DEPONENT

VERIFICATION
Verified that the contents of this affidavit are true to the best of
G
my knowledge and no part of it is false and nothing material has
been concealed therein.
Signed and verified at Gurgaon on this 4th day of July, 2003.
DEPONENT”
H
104 SUPREME COURT REPORTS [2020] 7 S.C.R.

A 20. Thus, the affidavit of Company Secretary dated 04.07.2003
clearly stating that the appellant who was Director of the erstwhile MXL
was only a part time Director of the said Company and was never in
charge of the day to day business of the Company was very much on
the record of the adjudicating officer and the High Court erred in holding
B that the said material was not filed before the Adjudging Authority or the
Appellate Tribunal.
21. The High Court, thus, discarded the plea of the appellant that
he was part-time, non-executive Director as afterthought and did not
consider the same on the ground that the affidavit dated 04.07.2003
C relied by the appellant was not filed which, as noted above, is not correct.
There was nothing on record brought on behalf of the Department that
the above plea of the appellant was incorrect and it was the appellant
who was responsible for the conduct of business of the Company at the
relevant time.
22. We, thus, are of the view that the material was brought by the
D
appellant on the record that he was a part-time, non-executive Director
not incharge of the affairs of the Company at the relevant time, which
was erroneously refused to be considered.
POINT NO.3
E 23. The Adjudicating Authority has in its order dated 31.03.2004
noted the reply dated 29.10.2003 filed on behalf of the appellant and
Adjudicating Authority has extracted several paragraphs of the reply of
the appellant. Paragraph 10 of the reply has been extensively quoted by
the Adjudicating Authority specially sub-paragraph (1), (2) and (3) which
are to the following effect:
F
“10 It is prayed that the proceedings initiated may kindly be dropped
on the following amongst other main grounds, which are set out
hereinafter without prejudice to one another and are in addition to
the facts and submission set forth hereinabove

G (1) That the Notice was a decorative part time non-executive
Director and the Board Meetings attended by him have only
been in his capacity as a part-time non-executive Director
and not in any other capacity. The Noticee was never in the
employment of the company and never ever had nay executive
role or function in the Company. A copy of the Affidavit filed
H
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 105
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

by the noticee with his reply to Show Cause Notice No.T-4/ A
337/DZ/2002 dated 28.05.2002 of the Company Secretary of
XMC at the time to its swearing confirming that the Noticee
was only a part-time Director of MXL and was never in charge
of the day to day business of MXL is enclosed herewith and
marked as Annexure - ‘C’. This Notice has been never
B
engaged in day to day conduct of the business of MXL. He
has never entered into any import agreement. He has never
issued any instructions to any person or the bank for causing
any remittance abroad and as such he is not responsible for
liable at all in any manner.
(2) It is respectfully submitted that the documents enclosed with C
MXL’s reply of 04.12.1991, 25.12.1991, 25.12.1991 and
09.07.1993 and XMC’s reply dated 26.03.2001 will establish
that goods have been imported against the remittances
mentioned in the Annexure and they had been duly reported
to Reserve Bank of India and there is no evidence of goods D
not having been imported.
(3) This Noticee was never in charge of the day to day business
of MXL and had no knowledge of the transactions in respect
of which the above referred Show Cause Notice dated
08.10.2003 had been issued much less any intent or knowledge E
of alleged contraventions as set forth therein. The certificates
of compliances given by MXL management to the Board
prove and establish that the contraventions alleged in the above
referred Notice and the subject Memorandum, in any view
of the matter if occurred, were without the knowledge and
had nothing to do with the transactions in question, the question F
of this Noticee committing consciously or deliberately any
contravention of the FERA or any other law or regulations
does not arise and no penalty can in law be imposed on this
Noticee. The adjudication proceedings are otherwise not
maintainable in law.” G
24. After noticing the above plea of the appellant, the Adjudicating
Authority has noticed that letter dated 26.03.2001 of the Company
Secretary where he has given the names of 13 Directors and after noticing
the aforesaid 13 Directors the Adjudicating Authority has recorded its
conclusion in following words: H
106 SUPREME COURT REPORTS [2020] 7 S.C.R.

A “I have also gone through the replies received from other directors
and found that they were not responsible for day to day activities
of the company and were not the Directors during the relevant
period which was between 12.06.1985 to 21.11.1985 and they
were the nominees of IFCI, GIC, ICICI, UTI and IDBI
respectively, hence, I drop the charges against the Directors except
B
S/Sh. Bhupinder Kumar Modi, Umesh Kumar Modi, John Rodger
Miligan, James Campbell White and Shailendra Swarup who were
Directors at relevant time and responsible for working of the M/
s Modi Xerox Ltd.,I hereby find them guilty and impose a penalty
of Rs.1,00,000/- (Rupees One Lakh only) each on S/Sh. Bhupinder
C Kumar Modi, Umesh Kumar Modi, John Rodger Miligan, James
Campbell White and Shailendra Swarup and Rs.5,00,000/- (Rupees
Five Lakhs only) on M/s Modi Xerox Ltd. for contravention of
Section 8(3) read with Section 8(4) and Section 68 of FERA,
1973, I also find the other directors were not joined the company
at relevant time when the transaction had taken place and were
D
not responsible for the conduct of the company, hence I drop the
charges against S/Sh. Laurence Lyndon Haddon, Stephen
Lawrence Tiemey, Bernard Fournier, R.S. Lodha, R.P. Goel, Jan
Williams Van Erde, Chaman Lal Turki Dhar, Ramesh C. Vash,
S.K. Jain, K.P. Narasimhan, Sunil Mitra, Sundershan Lal, R.K.
E Mahajan, C.G. Parekh, Kari Kumar and Usha Ranjan Saha.”
25. There is no consideration of pleas of the appellant as has been
extracted by the adjudicating officer himself as noted above specially in
paragraph 10(1), 10(2) and 10(3) of the reply. The adjudicating officer
has not even held that the pleas taken by the appellant were untenable.
F The adjudicating officer, thus, has imposed the penalty without returning
a finding that it was the appellant who was liable for contravention of
the provisions of Section 8(3), 8(4) and Section 68 of the FERA, 1973.
The order of the adjudicating officer, thus, is unsustainable on the above
ground also.
G 26. The Appellate Tribunal has also not considered the above plea
of the appellant and by making general observation that management of
the Company is to be handled by the Board of Directors, hence, the
appellant being Director is held guilty. No finding has been returned by
the Appellate Tribunal that the appellant was not a part-time, non-
executive Director and was responsible for the conduct of business of
H the Company at the relevant time.
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 107
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

27. We may also notice few judgments of this Court some of A
which have also been referred to by the learned counsel for the parties.
A three-Judge Bench judgment in S.M.S. Pharmaceuticals Ltd. Vs.
Neeta Bhalla and another, (2005) 8 SCC 89, had occasion to consider
the provisions of Section 141 of the Negotiable Instruments Act, 1981
which provisions are parimateriato Section 68 of the FERA, 1973.
B
Section 68 of the FERA, 1973 deals with Offences by Companies and is
to the following effect:
“68. Offences 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 C
thereunder is a company, 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 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- D
section shall render any such person liable to punishment if he
proves that the contravention took place without his knowledge
or that he exercised all 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, E
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 F
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 any body corporate and includes a firm or
other association of individuals; and G
(ii) “director”, in relation to a firm, means a partner in the firm.”
28. In the Negotiable Instruments Act, 1881 initially there was no
provision regarding offences by Companies and by Act 66 of 1988 Section
141 was inserted in the Negotiable Instruments Act, 1881 which provision
is to the following effect: H
108 SUPREME COURT REPORTS [2020] 7 S.C.R.

A “Section 141. Offences by companies.—(1) If the
person committing an offence under section 138 is a company,
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 and shall be liable to be
B
proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall
render any person liable to punishment if he proves that the offence
was committed without his knowledge, or that he had exercised
all due diligence to prevent the commission of such offence:
C
Provided further that where a person is nominated as a
Director of a company by virtue of his holding any office or
employment in the Central Government or State Government or a
financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he
D shall not be liable for prosecution under this Chapter.
(2) Notwithstanding anything contained in sub-section (1), where
any offence under this Act has been committed by a company
and it is proved that the offence has been committed with the
consent or connivance of, or is attributable to, any neglect on the
E 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 that offence and shall be liable to
be proceeded against and punished accordingly.
Explanation.—For the purposes of this section, —
F
(a) “company” means anybody corporate and includes a
firm or other association of individuals; and
(b) “director”, in relation to a firm, means a partner in the
firm.”
G 29. A bare reading of Section 141 of Negotiable Instruments Act,
1881 indicates that sub-section (1) and sub-section (2) of Section 141
are parimateriato Section 68 of FERA, 1973 which was already in the
statute. This Court in S.M.S. Pharmaceuticals (supra) had occasion
to consider the requirements of Section 141. In paragraph 4 this Court
lays down following:
H
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 109
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

“4.....The normal rule in the cases involving criminal liability A
is against vicarious liability, that is, no one is to be held criminally
liable for an act of another. This normal rule is, however, subject
to exception on account of specific provision being made in statutes
extending liability to others. Section 141 of the Act is an instance
of specific provision which in case an offence under Section 138
B
is committed by a Company, extends criminal liability for dishonour
of cheque to officers of the Company. Section 141 contains
conditions which have to be satisfied before the liability can be
extended to officers of a company. Since the provision creates
criminal liability, the conditions have to be strictly complied with.
The conditions are intended to ensure that a person who is sought C
to be made vicariously liable for an offence of which the principal
accused is the Company, had a role to play in relation to the
incriminating act and further that such a person should know what
is attributed to him to make him liable. In other words, persons
who had nothing to do with the matter need not be roped in. A
D
company being a juristic person, all its deeds and functions are
result of acts of others. Therefore, officers of a Company who
are responsible for acts done in the name of the Company are
sought to be made personally liable for acts which result in criminal
action being taken against the Company. It makes every person
who. at the time the offence was committed, was incharge of and E
was responsible to the Company for the conduct of business of
the Company, the Company, liable for the offence. The proviso to
the sub-section contains an escape route for persons who are
able to prove that the offence was committed without their
knowledge or that they had exercised all due diligence to prevent
F
commission of the offence.’’
30. This Court held that the criminal liability arises from being
incharge of and responsible for the conduct of the Company at the relevant
time. Elaborating the requirement for a person to be made liable under
Section 141 this Court laid down following in paragraphs 10 and 12:
G
“10. While analysing Section 141 of the Act, it will be seen that it
operates in cases where an offence under Section 138 is committed
by a company. The key words which occur in the Section are
“every person”. These are general words and take every person
connected with a company within their sweep. Therefore, these
H
110 SUPREME COURT REPORTS [2020] 7 S.C.R.

A words have been rightly qualified by use of the words “ 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 etc.” What is required is that the persons who are
sought to be made criminally liable under Section 141 should be at
B
the time the offence was committed, in charge of and responsible
to the company for the conduct of the business of the company.
Every person connected with the company shall not fall within
the ambit of the provision. It is only those persons who were in
charge of and responsible for conduct of business of the company
C at the time of commission of an offence, who will be liable for
criminal action. It follows from this that if a director of a Company
who was not in charge of and was not responsible for the conduct
of the business of the company at the relevant time, will not be
liable under the provision. The liability arises from being in charge
of and responsible for conduct of business of the company at the
D
relevant time when the offence was committed and not on the
basis of merely holding a designation or office in a company.
Conversely, a person not holding any office or designation in a
Company may be liable if he satisfies the main requirement of
being in charge of and responsible for conduct of business of a
E Company at the relevant time. Liability depends on the role one
plays in the affairs of a Company and not on designation or status.
If being a Director or Manager or Secretary was enough to cast
criminal liability, the Section would have said so. Instead of “every
person” the section would have said “every Director, Manager or
Secretary in a Company is liable”....etc. The legislature is aware
F
that it is a case of criminal liability which means serious
consequences so far as the person sought to be made liable is
concerned. Therefore, only persons who can be said to be
connected with the commission of a crime at the relevant time
have been subjected to action.
G 12. The conclusion is inevitable that the liability arises on account
of conduct, act or omission on the part of a person and not merely
on account of holding an office or a position in a company.
Therefore, in order to bring a case within Section 141 of the Act
the complaint must disclose the necessary facts which make a
H person liable.’’
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 111
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

31. The ratio of the above judgment has been reiterated by this A
Court in N.K. Wahi vs. Shekhar Singh and others, (2007) 9 SCC
481, National Small Industries Corporation Limited vs. Harmeet
Singh Paintal and another, (2010) 3 SCC 330 and Pooja Ravinder
Devidasani vs. State of Maharashtra and another, (2014) 16 SCC
1.
B
32. Learned Additional Solicitor General placed reliance on the
judgment of this Court reported in N. Rangachari vs. Bharat Sanchar
Nigam Ltd., (2007) 5 SCC 108. This Court in Rangachari was again
considering the provisions of Section 141 of the Negotiable Instruments
Act, 1881. Learned Additional Solicitor General relied on paragraphs 17
to 22. In N. Rangachari this Court has noticed the earlier three-Judge C
judgment in S.M.S. Pharmaceuticals Ltd.(supra) and clearly held that
the said judgment is binding. In paragraph 20 of N. Rangachari, this
Court laid down following:
“20. In other words, the law laid down by this Court is that
for making a Director of a Company liable for the offences D
committed by the Company Under Section 141 of the N.I. Act,
there must be specific averments against the Director showing as
to how and in what manner the Director was responsible for the
conduct of the business of the Company.”
33. Thus, what was held in S.M.S. Pharmaceuticals Ltd.(supra) E
has been reiterated by N. Rangachari. We may also refer to paragraph
23 of the N. Rangachari judgment where following has been laid down:
“23. In the light of the ratio in S.M.S. Pharmaceuticals Ltd. (2005)
8 SCC 89, what is to be looked into is whether in the complaint, in
addition to asserting that the appellant and another are the Directors F
of the company, it is further alleged that they are incharge of and
responsible to the company for the conduct of the business of the
company. We find that such an allegation is clearly made in the
complaint which we have quoted above. Learned Senior Counsel
for the appellant argued that in Saroj Kumar Poddar case (2007) G
3 SCC 693, this Court had found the complaint unsustainable only
for the reason that there was no specific averment that at the
time of issuance of the cheque that was dishonoured, the persons
named in the complaint were incharge of the affairs of the
company. With great respect, we see no warrant for assuming
such a position in the context of the binding ratio in S.M.S. H
112 SUPREME COURT REPORTS [2020] 7 S.C.R.

A Pharmaceuticals Ltd. and in view of the position of the Directors
in a company as explained above.”
34. In the facts of the above case this Court held that allegations
were clearly made out in the complaint. Judgment of this Court in
N. Rangachari, thus, does not help the respondent nor it, in any manner,
B dilute the ratio of three-Bench judgment in S.M.S. Pharmaceuticals
Ltd. (supra).
35. We may notice one more judgment of this Court, National
Small Industries Corporation Limited Vs. Harmeet Singh Paintal
and Another, (2010) 3 SCC 330, interpreting Section 141 of the
C Negotiable Instruments Act, 1881. After extracting Section 141 of the
Negotiable Instruments Act dealing with offences by companies, this
Court in paragraph 12 and 13 laid down:-
“12. It is very clear from the above provision that what is required
is that the persons who are sought to be made vicariously liable
D for a criminal offence under Section 141 should be, 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.
Every person connected with the company shall not fall within
the ambit of the provision. Only those persons who were in-charge
of and responsible for the conduct of the business of the company
E at the time of commission of an offence will be liable for criminal
action. It follows from the fact that if a Director of a Company
who was not in-charge of and was not responsible for the conduct
of the business of the company at the relevant time, will not be
liable for a criminal offence under the provisions. The liability
F arises from being in-charge of and responsible for the conduct of
the business of the company at the relevant time when the offence
was committed and not on the basis of merely holding a designation
or office in a company.
13. Section 141 is a penal provision creating vicarious liability, and
G which, as per settled law, must be strictly construed. It is therefore,
not sufficient to make a bald cursory statement in a complaint
that the Director (arrayed as an accused) is in charge of and
responsible to the company for the conduct of the business of the
company without anything more as to the role of the Director.
But the complaint should spell out as to how and in what manner
H Respondent No. 1 was in-charge of or was responsible to the
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 113
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

accused company for the conduct of its business. This is in A
consonance with strict interpretation of penal statutes, especially,
where such statutes create vicarious liability.”
36. In the above case, this Court held that Directors can be
prosecuted only if they were in-charge and responsible for the conduct
of the business of the company. In paragraph 36, following has been laid B
down:-
“36. Section 291 of the Companies Act provides that
“291. General powers of Board.—(1) Subject to the provisions
of that Act, the Board of Directors of a company shall be entitled
to exercise all such powers, and to do all such acts and things, as C
the company is authorized to exercise and do.
A company, though a legal entity, can act only through its Board
of Directors. The settled position is that a Managing Director is
prima facie in-charge of and responsible for the company’s business
and affairs and can be prosecuted for offences by the company. D
But insofar as other Directors are concerned, they can be
prosecuted only if they were in-charge of and responsible for the
conduct of the business of the company.”
37. Section 68 of FERA, 1973 deals with “Offences by
companies”. Section 68(1) provides that “……………every person who, E
at the time of the contravention was committed, was in charge of, and
was responsible to, the company for the conduct of 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 F
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. G
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 different manner. When a person
is proceeded with for committing an offence and is to be punished,
necessary ingredients of the offence as required by Section 68 should
H
be present.
114 SUPREME COURT REPORTS [2020] 7 S.C.R.

A 38. 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,
B
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
C on Section 141 of Negotiable Instruments Act as noted above are also
clearly relevant while interpreting Section 68 of 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
D
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. This Court
in S.M.S. Pharmaceuticals Ltd. (supra) while elaborating the ambit
and scope of Section 141 of Negotiable Instruments Act has already laid
E down above in paragraph 10 of the judgment as extracted above.
39. It is true that with regard to any offence punishable under
Section 138 of Negotiable Instruments Act with respect to offences by
companies, a complaint in writing has to be filed as required by Section
142 of the Negotiable Instruments Act. A complaint as contemplated for
F offence under Section 138 needs to be necessarily contain all allegations
constituting offence. In FERA, 1973 for imposing a penalty under Section
50, the adjudicating officer is required to hold an enquiry after giving the
person a reasonable opportunity for making a representation in the matter.
Even though, FERA, 1973 does not contemplate filing of a written
complaint but in proceedings as contemplated by Section 51, the person,
G 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
H contains complete ingredients of offence within the meaning of Section
SHAILENDRA SWARUP v. THE DEPUTY DIRECTOR, 115
ENFORCEMENT DIRECTORATE [ASHOK BHUSHAN, J.]

68, it cannot be said that a reasonable opportunity for making a A
representation in the matter has been given to the person, who is to be
proceeded with.
40. Learned ASG is right in his submission that FERA, 1973 does
not contemplate any complaint but the Scheme of the Act indicate that a
person, who is to be proceeded with has to be made aware of the B
necessary allegations, which may constitute an offence on his part. This
Court in N. Rangachari (supra) has observed that a person in the
commercial world having a transaction with company is entitled to
presume that the Directors of the company are in charge of the affairs
of the company. The presumption of a person in the commercial world is
a rebuttable presumption and when adjudicating authority proceeds to C
impose a penalty for a contravention of FERA, 1973, essential ingredients
constituting an offence under the FERA read with Section 68 has to be
communicated to the person proceeded with to enable him to make
effective representation in the matter.
41. Learned Additional Solicitor General also submitted that all D
the three Courts have held and found contravention proved by the
appellant, this Court may not interfere with such conclusion. We have
already noticed above that the plea of the appellant that he was part-
time, non-executive Director not incharge of the conduct of business of
the Company at the relevant time was erroneously discarded by the E
authorities and the High Court and there is no finding by any of the
authorities after considering the material that it was the appellant who
was responsible for the conduct of business of the Company at the relevant
time. Thus, present is a case where the liability has been fastened on the
appellant without there being necessary basis for any such conclusion.
F
42. It is also relevant to notice that an order which was passed on
13.02.2004 by the Deputy Director in adjudication proceedings although
with regard to different period, the plea of the appellant that he was only
a part-time, non-executive Director and not responsible of the conduct
of business of the Company was accepted and notice was discharged
against the appellant. The order dated 13.02.2004 although related to G
different period but has categorically noticed the status of the appellant
as part-time non-executive Director. There being decision of Adjudicating
Authority, in the recent past, passed on 13.02.2004, that the appellant
was only a part-time non-executive Director of MXL, there has to be
some reasons for taking acontrary view by the adjudicating officer in H
116 SUPREME COURT REPORTS [2020] 7 S.C.R.

A order dated 31.03.2004 with regard to affairs of the same company, i.e.,
MXL.
43. In view of the foregoing discussions, we are of the view that
the adjudicating officer has erroneously imposed penalty on the appellant
for the alleged offence under Section 8(3), 8(4) and 68 of the FERA,
B 1973 which order was erroneously affirmed both by the Appellate Tribunal
and the High Court.
44. In view of the aforesaid, this appeal deserves to be allowed,
the judgments of the High Court as well as those of the adjudicating
officer and the Appellate Tribunal are set aside. The appeal is allowed
C and the penalty imposed on the appellant is set aside.

Kalpana K. Tripathy Appeal allowed.

D

E

F

G

H