Supreme Court: On the question of liability to be proceeded with for offence under Section 68 of FERA, 1973, the bench of Ashok Bhushan and R. Subhash Reddy, JJ has held that the same depends on the role one plays in the affairs of the company and not on mere designation or status. The Court explained,
“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.”
Drawing correlation between Section 141 of the Negotiable Instruments Act, 1981 and Section 68 of FERA, 1973, the Court explained that Section 141 of NI Act contains the same conditions for a person to be proceeded with and punished for offence as contained in Section 68 of FERA, 1973. While coming to the aforementioned conclusion, the Court noticed that Section 141(1) of NI 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”. It, hence, said that 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 bench noticed that Section 68 of FERA, 1973 deals with “Offences by companies” and 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 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.”
The bench agreed with the submission that FERA, 1973 does not contemplate any complaint but the Scheme of the Act indicates that a person, who is to be proceeded with has to be made aware of the necessary allegations, which may constitute an offence on his part. It said that though 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 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.
It further explained that 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, 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.
[Shailendra Swarup v. Deputy Director, Enforcement Directorate, 2020 SCC OnLine SC 600 , decided on 27.07.2020]